OVERVIEW

As has been the case throughout 2011, oce again the risk on/risk off mood has swung through 180 degrees. The trigger this time was the S&P review of the whole of euro?using sovereigns in Europe. The killer blow is that the 7 top rated nations, including France and Germany, might lose their AAA status within 3 months. The market now realizes support for southern Europe leads to a downgrade, whilst not doing so risks an implosion. Thus the euro has became a lose?lose trade again. As expected the RBA ciut rates by 0.25%, whilst Chinese worries continue with more data showing rapid slowing of the economy.

Key: PA = Price Action | LR = Linear Regression | MA = Moving Average.

AUD [USD: 1.0235]

Though expected, the 0.25% rate cut from the RBA triggered an immediate sell off. In fact the market was probably just waiting for the release to confirm the risk off trades from the earlier S&P move on European rates.
The hourly charts show this has pushed AUD USD down to the lower end of the 4?day old range. Support has arrived from the bullish 5?day average at 1.0165?70. However the USD is moving higher across the board and so the move here looks like extending to 1.0095 and then 0.9998, the 50% retrace of the recent short covering rally to 1.0329 high.

NZD [USD: 0.7755]

The Kiwi has tracked the AUD lower against the USD as the pair remain locked by the remarkably stable AUD NZD cross. Now we have to see whether the RBNZ follow the RBA in lowering rates too.
On the hourly chart the trend is lower again and it looks like the move will continue on to 0.77?10 and from there to 0.7603, the centre of the recent short?covering surge to the 0.7836 high.
Some might like at look at the NZD JPY cross (60.30) which has the potential to fill the large downside gap to 58.00 or more.

AUD [NZD: 1.3120]

The cross continues to trade in a jagged fashion, but remains constrained by the recent trading range, which is now almost 2 weeks old. Following the RBA announcement the AUD briefly slumped to 1.3075 again before rallying strongly. It now looks like a break of that level would be key for 1.3000 or lower but we are not going to anticipate, just watch and wait.

EUR [USD: 1.3350]

The S&P review of European ratings has reminded the market that there is no easy or pain free solution to the European debt and banking crises. Thus the market has once again taken risk off the table and pushed the lower back down towards the bottom of the range. The move is by no means extreme as the market still holds out some hope of a solution from EU leaders at their summit on Friday. We cannot be very confident at all!
On the charts the major and minor trends are again pointing lower. The latest move has clearly knocked out the 1.3375 level, the mid?point of last week’s rally. Thus we have to target the next support, which is down at 1.3212.

JPY [USD: 77.75]

The risk off mood has seen funds flow back into the JPY, a pattern we have seen replicated all year. The hourly chart below might look dramatic but the moves are by no means large. The range is only 100 points wide at its max. The hourly trend is lower again and the next supports are at 77.40?50 and then 77.30. What looks like very good value is yen cross trades. Here the JPY has turned higher against Europeans and commodity dollars and there is between 2% and 5% of risk on rallies from last week that are under threat from a sharp retrace.

GBP [USD: 1.5610]

Much to our surprise the key EUR GBP cross remains very stable between 0.85 and 0.86. As a result Cable continues to track the moves in EUR USD. Thus the S&P ratings threats have seen sterling dragged lower. On the hourly chart we see that, once again, the bearish 22?day average resisted for the 4th time (blue curve and red arrows).
Look ahead we are taking our cue from the bearish major and minor trends. These are targeting a further lurch lower and the low of two weeks ago at 1.5425 looks easily reachable.

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