CAD/JPY
Thin Japanese Figures: No economic news on the day could bolster traders' interest in the Japanese yen as the major leg dropped past the 116 support figure. Now with both the 115 support and 116 option related barrier broken, a test of 118 looks more than probable. However, given the current price action, a retracement looks to be in the works prior to such a notion. Slated for the session was the domestic vehicle sales report for the month of October. The annualized figure disappointed to the downside dipping 3.4 percent following a 0.1 percent dip in the previous month. Consequently, traders are turning their attention to household spending figures later this week for any real fundamental speculation.
Oil Declines: Extending losses from yesterday, oil contracts on the New York Mercantile Exchange continued their declines as traders pared back positioning on warmer than expected climate in the Northeast. Additionally, momentum from yesterday's OPEC comments seems to be adding downward pressure on the commodity as the price has now dipped below the $60 a barrel price level. Yesterday, OPEC leaders released statements that global demand would be more than adequately provided for.
Canadian Interest Rates: Speculation continued to rise for further hike considerations by Bank of Canada Governor David Dodge on yesterday's output figures. With higher rates, Canadian denominations are increasingly preferred versus the zero rate policy yen. Subsequently, contributing to further speculation of rate increases was today's rate hike by U.S. Federal Reserve policy makers.
EUR/AUD
In-Line Economic Data: Manufacturing was released more or less in line with earlier estimates for the euro zone and individual regions lending subtle euro strength in the session. Lending to euro weakness, however, was the earlier than expected leak of German unemployment figures. Dropping more than expected by 36,000, the rate continues to remain in lofty territory in light of relatively optimistic data recently. As a result, interest continues to be weak with the notion of higher benchmark rates serving as the sole spark that could lend to a euro rally.
Central Bank Interest: Once again repatriation kept the pair lower in overnight trading as corresponding parties pushed HIA offers. However, capping the losses, rumors of central bank bids near 1.1960 pushed the major leg higher throughout the session. Notably on the session, option related buying is rumored around the bank bids.
Aussie Weakness: Providing the other leg of the synthetic cross, traders pared back positioning in the Australian dollar in anticipation of tonight's disappointing announcement of a stay on rates. Noted in yesterday's publication, with a pullback likely in the output of the economy and tamed inflationary pressures, Reserve Bank of Australia Governor McFarlane will more than likely keep rates at the current 5.5 percent. Rather disappointed, carry traders will now be turning to the Aussie counter Kiwi for the 7 percent yield.
Technically Speaking: Currently hovering the intrasession high of 1.6154, the cross looks slightly overextended after shooting through consolidation at the 1.6100 figure. As a result, a retracement to the 38.2 percent fib level looks more probable after such a run up prior any further upside direction. Additionally, piercings above the spike may provide a short lived rally.
AUD/CAD
Commodity Competition: In addition to downside interest in the Aussie major on short term benchmark yields, traders look to have pared back interest in line with declining December gold contracts. Continuing yesterday's slide, contracts on the COMEX dipped another $6.30 to $460.60 settlement as liquidation followed on the heels of further rate increases in the world's largest economy. Even though technically a bottom may be forming, some further downside is noted past the $450.00 price level.
Looking Ahead: With the Reserve Bank of Australia decision fresh on the minds of traders, market players look to retail sales figures to be released tomorrow. Although rising optimistically in the previous month by 0.6 percent, consensus estimates point to a 0.1 percent decline in the current month as consumers feel continued pressure from higher petrol prices and lofty costs of money.
Technically Speaking: Previously consolidating between the 61.8 percent fib at 0.8844 and the 38.2 percent fib at 0.8804, the cross synthetic has crashed through, forming a temporary bottom at the intrasession low. Although a retracement will test the aforementioned 38.2, further downside looks probable as based on the major leg. The next test of support looks to be the almost 3 year low of 0.8658 set back in December of 2002.
Richard Lee is a Currency Strategist at FXCM.
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