AUD/USD
Commodity Prices - Nothing But Upside: Barring the steady price action of crude oil on the session, base metal prices continued on their upward path as gold contracts broke through 18-year highs to approach even closer to the ever psychological $500 resistance level. Additionally, copper prices continued in line with platinum contracts to multiyear highs. The anticipated increase in global demand of raw metals has fueled the resurgence of interest along with inflationary concerns. As a result, commodity bloc currencies like the Aussie have become the prime beneficiary of rising commodity prices.
Leading Indicators: Breaking through the recent consolidation, traders bid the U.S. currency leg lower against the Australian base in light of the leading economic indicators report. Rebounding from the previous decline, the October figure rose 0.9 percent. With hurricane disaster dampening last month's data, the current figure seems to be more reflective of the current conditions as consumer spending and confidence have risen in line with higher productivity figures. As a result, attention now lies with the upcoming release of the Federal Reserve's meeting minutes. Offering clues on the future direction of interest rates, traders will be scouring for mentions in regards to the possibility that inflation will be well contained going into the new year.
Technically Speaking: The Australian dollar made a strong push against the dollar in today's session before being cut short by a 38.2 fib at 0.7390/5 waiting in the wings. Another test at this resistance level will be met with dollar strength with a level at 0.7385 formed by a range high in the later half of 2004 and representing former support in July. Further north a confluence of a short term 50.0 fib and a longer term 23.6 fib at 0.7430/5 will present a larger level of resistance to trump. On the way down, support will come first from the rising trendline starting at the 13-month low at 0.7325. This relatively historical low at 0.7260 will be a major break for more dollar rallying.
EUR/AUD
More ECB Rhetoric: After Friday's momentum on interest rate confirmation, traders were slightly taken aback today as European Central Bank President Trichet stated with certainty that any near term interest rate hike should not be considered in a series hikes. Although most were not expecting such a scenario, it does bring to light the possibility that inflation may not be as pressing as earlier mentioned. Stating that rates needed to be "augmented" to fit price risks currently existent in the region, policy makers may now be issuing more rhetoric than application in order to boost near term interest in the single currency or regional investments. As a result, traders pared back previously long positions.
Thin Volume Trading: Thinner than normal volume hit the AUDUSD leg as stops were triggered above the 0.7350 price figure with an option barrier at 0.7375 being knocked out on the way higher to 0.7390. Additionally, with recent comments from the ECB President on near term interest rates, investor interest remains strong as the differential is considerably wide between the two economies.
Technically Speaking: A strong push for the Australian dollar moved has further carved out the range the single currency has formed against the euro. The 50.0 fib level at 1.5945/50, though not acting as an exact turning point for support, has acted as a relative support level for the past two months. The 61.8 fib further down at 1.5865/70 will be another level of indecision for the pair with a breach likely not ubstructed until a range support from a few months back at 1.5725/30 comes into veiw. A euro rally would move on the range high 1.6093 once again which has been capped by a long term 61.8 fib level a little higher at 1.6800.
USD/CAD
Disappointing Data: Retail sales in the world's eighth largest economy dipped as consumers, plagued by higher energy prices, reduced their purchases of automobiles. The headline figure dipped 0.9 percent on the month. As a result, barring the commodity driven buying today, earlier speculation had the currency pair in favor of the greenback as lower retail sales jeopardizes further near term rate hikes. Nonetheless, rising commodity prices, including a slight resurgence in crude oil demand as weather forecasts foresee snow in the Northeast, have buoyed the Canadian dollar as we eneter the Asian session.
Technically Speaking: A strong Canadian dollar break of the 38.2 fib of the month long dollar rally at 1.1850 brought into view a second fib level, this one the 50.0 of the same rally at 1.1805/10 which gave the next level of support. A break below 1.1800 would be needed to achieve a true loonie trend which would lead to an eventual move to 1.1715/1700 which has been a level of indecision before. If dollar bulls can take back control, the former support at 1.1850 would be near resistance with a falling trendline at 1.1895 being another level for loonie bids to mount a defense.
Richard Lee is a Currency Strategist at FXCM.
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