AUD/USD
Confidence Improves - But Will It Last?: Without any US economic news on the wires today and broad US dollar pessimism in the market, the aussie took the opportunity to move ahead today, hitting a four-week high. This rally was partly driven by an impressive improvement in confidence as revealed in last night's report of the Westpac-Melbourne Institute Index of Consumer Sentiment. The figure rose 2.6 percent in January on low unemployment. However, even with this most recent rise, the index level is still nearly 13 percent lower than that seen in January 2005. Also, recent comments from RBA Governor Ian MacFarlane suggest an interest hike sometime in the near future based on the bank's expectation of building inflation pressures. This move by the central bank, although it should lend strength to the currency, will surely bring another drop in confidence, which will put other key economic areas, namely consumer spending, at risk.
Technically Speaking: The trend channel in the AUDUSD has once again with a tag of the bottom channel boundary and a subsequent strong Australian dollar rally to the 0.7560 level. Greenback bidding held the market here making the statement that a break would require more momentum and therefore more conviction in the Aussie dollar's rally. At this 0.7560 level, a 61.8 fib of the Aug. 12th to Dec. 27th US dollar rally converging with a falling trendline beginning on October 27th within the same 10 pip vicinity. Breaking this resistance would have a large followup rally that would run to the three month high 0.7600 before contining higher. If the resistance holds, support will come in two stages, first from the rising channel and second from yesterday's congestion low at 0.7485. Either way, the converging channel and resistance must be resolved in a break
AUD/JPY
Solid Japanese Data No Match For Aussie Strength: After a solid, but less-than-stellar release of Japanese Leading and Coincident indices during the Tokyo trading session, the yen lost some of its recent strength against the majors. The leading index came in at 60 percent, much lower than October's 81.8 percent, but still above the 50 percent level, which is indicative of economic growth over the next six months. November's coincident index, which measures current economic activity, also came in as expected at 66.7 percent, down from 90 percent in the prior month. The mixed nature of the report left the yen slightly weaker shortly after the release. The yen made improvements later in the day against other majors, mostly due not to its own strength but instead to soft data from the other side of the pair. However, positive data from Australia proved to be a formidable challenger to the yen and the pair ultimately rose nearly 80 pips from yesterday's close at its highest point.
Technically Speaking: The range in the AUDJPY has been confirmed with another uncessful test of the range's bottom at 85.60. Continuing to the true upper-bound of the range at 87.00 may prove unobtainable in the immediate future, with consolidation forming around 86.35 with multiple topping tails. However, an extended run to the 87 level is more likely than breaking the lower bound. If the support is broken in the coming session, the four-month low at 84.50 representing Aussie bidders' next front of defense.
NZD/USD
Bond Issuance Sends Kiwi Higher: After the market largely ignored a minor data release of a decrease in the employment confidence index of Westpac McDermott Miller, the kiwi was sent higher today during the New York session after a total NZ$200 million 3-year 6.00% Eurobond issuance from the European Investment Bank. The recent demand for bonds following a second RBNZ interest rate hike in December has finally pushed NZDUSD to a three-week high today. The kiwi also garnered some strength from today's rise in the Australian dollar due to the close ties between the two countries' economies and currencies. Without any economic releases until next week aside from tomorrow's release of building permits for November, the kiwi could stand to continue benefiting from its interest rate advantage for the time being.
Technically Speaking: Similar to the Australian dollar, the New Zealand dollar has formed a rising trendchannel against the greenback and current price action has brought it directly upon resistance. Steady bidding has forced spot to rise in the top-half of the channel for the past three days. The the most recent evidence of this two week rally came with the break of the 50.0 of the Dec. 5th to 23rd US dollar rally at 0.6949. After multiple tests and rising lower lows, congestion finally gave way to upperward momentum and the pair traded all the way to the upper boundary once again. Extending the rally would require a break of a long-term 38.2 fib of the Mar. 16th to Jul. 8th dollar run at 0.6983. If this level is broken, a potential run to the next consolidation level at 0.7050 is possible; but the more probably reversal would bring the pair to the the channel bottom that will line up of with the 38.2 fib of the December greenback rally at 0.6890.
Richard Lee is a Currency Strategist at FXCM.
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