AUD/USD
Aussie Data Disappoints, Focus Turns To Employment: According to the Bureau of Statistics, the Australian trade deficit widened to an eight month record as imports for consumer goods and aircraft bolstered the country's intake. Comparatively, exports rose a mild 1 percent in the month of November, making up 20 percent of the overall activity in the region. The trade gap for the month ballooned to A$2.47 billion from a revised A$1.38 billion in the month of October. Subsequently, in justifying the greater than expected figure, the agency noted that the current customs electronic system, which had experienced a backlog of entries, created the figure and may have overstated the monthly data. Nonetheless, even if the computerized system created a backlog, averaging out the months, the deficit still stands well above what some consider comfortable and will continue downward pressure on the underlying. As a result, increased scrutiny will be placed on the upcoming employment report as market participants focus on tight labor market conditions in justifying the higher consumption. Separately, U.S. wholesale inventories rose on the month by 0.4 percent. Coupled with the inventories to sales ratio of 1.15 and higher consumer confidence in the economy, the increase looks to be indicative of higher demand by retailers on climbs in consumption.
Technically Speaking: The steady, two-week rally the Australian dollar has sustained against the benchmark greenback may finally be coming to an end. The AUDUSD pair has made an impressive 300 pip bullish rally that has been confined by a relatively narrow trend channel, however, serious resistance could finally spell the doom of the hearty trend. Resistance at 0.7550, carved out on Friday, was not only the result of tagging the upper trend barrier, but was also a test of a major falling trendline that began in October. Even if the trend is supported for another few days, these resistance levels will be hard to surpass especially with a 61.8 fib of the September 12th to December 27th US dollar rally resting at 0.7560. Support is also pretty stiff with the pair currently on the 73.6 fib of the same rally at 0.7486. If this channel should finally give, the retacement is likely to be staggered with hesitations at each fib level on its way back down.
AUD/JPY
Consumers Remain Hesitant In November: Data was disappointing in the Japanese economy as household spending dipped worse than previously expected. With a tepid turn around in the region already in the works, market participants were mildly surprised as consumers pinched wallets to the tune of a decline of 1.3 percent in the month. Rising earlier by 2 percent, consumption now stands at nil for the annualized comparison and may jeopardize the recently positive optimism. As a result, upward pressure has contained the underlying price action, currently stalling on last week's gains. Trader focus will now turn to monetary supply and broad liquidity. Although inflationary suggestions are far from being presented, anticipation in the details of the report will be well scrutinized.
Technically Speaking: The vain attempt to rally the Australian dollar against the strengthening Yen has sputtered. Last week's attempt to break back above the 38.2 fib of the December 6th to 23rd Yen rally at 87.12 failed and has left pair in a choppy decline. The steadily lower lows are beginning to form a falling support line that has been fairly effective in containing any strong sell off from hitting the pair. However, if this level should break, the three month low at 84.51 will be the next level for Aussie bids to protect the pair from a momentous sell off. If the support holds once again, an eventual run to the 38.2 fib is likely to follow with Yen bidding halting the AUDJPY pair there.
AUD/CAD
Housing Starts Look Fantastic: Dropping the most on the day, 0.9 percent, the AUDCAD cross pair was subject to simultaneous speculation of the disappointing Australian economic data. Adding to Canadian leg strength, housing starts rose again as the previous month's figure was revised higher. For the month of December, housing starts climbed 227.7K units as the previous 222.1K report was revised to 225K units for the month of November according to Canada Mortgage and Housing Corp. This now brings the new home construction activity to the second highest level since 1988. Suggestive of a strong consumer base on higher levels of growth and expansion, the trend may be short lived if policy officials continued to increase interest rates. Mortgage rates closely follow the short term benchmark and will place pressure on the consumer as the cost of money through loans rises. Subsequently, housing valuations continued to rise, although taken a bit back compared to the previous month's figure. New housing valuations rose 0.5 percent on the month versus a 0.7 percent climb last month.
Technically Speaking: After five days of strong rallying, the AUDCAD currency pair has finally taken a breath. After making multiple topping tails around the 0.8800/25 level, the pair finally crashed under selling pressure. The brake through the 23.6 fib of the December 28th to January 9th Aussie rally was tken out in a swift move by a bar that spanned 80 pips in four hours. The break was stopped short at the psychological 0.8700 level but it another round of selling is likely to find the level fragile and the 61.8 fib of the same run around 0.8600 a better candidate. To the upside, the 0.8825 level the pair has hesitated at yesterday will be the serious resistance, as the 38.2 fib of the August 5th to December 28th Canadian dollar run lies only 3 pips away.
Richard Lee is a Currency Strategist at FXCM.
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