The Euro is testing resistance at $1.32 and its descending trendline. Upward breakout would warn the primary down-trend is ending. Recovery of 63-day Twiggs Momentum above zero indicates a primary up-trend. Breakout above the 2012 high of $1.35* would strengthen the signal, but only a higher trough of several weeks would confirm.
* Target calculation: 1.275 + ( 1.275 – 1.20 ) = 1.35
Pound Sterling is correcting to support around €1.22 against the Euro. Breach of the rising trendline would warn the primary up-trend is ending, while retreat of 63-day Twiggs Momentum below zero would suggest a primary down-trend.
Canada’s Loonie is testing the new support level against the greenback at $1.02. Respect of support would confirm the primary up-trend indicated by long-term bullish divergence on 63-day Twiggs Momentum. Target for the advance is $1.08* but expect resistance at the 2011 highs of $1.06.
* Target calculation: 1.02 +( 1.02 – 0.96 ) = 1.08
The Aussie Dollar respected resistance at $1.06 against the greenback, retreating to test support at $1.04 on the daily chart. Respect of support is likely and follow-through above $1.05 would indicate another test of $1.06. The 63-day Twiggs Momentum trough above zero signals a primary up-trend. Breakout above $1.06 would confirm. Expect resistance at $1.075/$1.08, but target for an advance is $1.10*.
* Target calculation: 1.06 + ( 1.06 – 1.02 ) = 1.10
The Aussie Dollar is testing resistance at ¥83.50 against the Japanese Yen. Recovery of 63-Day Twiggs Momentum above zero indicates a primary up-trend. Breakout would signal an advance to ¥88*. Reversal below ¥79.50 is unlikely but would re-test primary support at ¥74.
* Target calculation: 84 + ( 84 – 80 ) = 88
A few readers objected to my view that the RBA should intervene to prevent further appreciation of the Australian Dollar. One reason cited is that the RBA is not strong enough to stand up to global capital markets and would eventually be forced to capitulate. I disagree. If you are printing your own money you can take on all-comers. The SNB demonstrated this by preventing depreciation of the euro against the Swiss Franc, pegging the rate at 1.20 CHF for the last year.
The second argument was that “the market knows best” and any interference would cause more problems than it solves. My answer to that is that capital markets are subject to huge ebbs and flows, some determined by trade fluctuations but primarily caused by speculative flows and deliberate strategies by other central banks. If the RBA fails to act, local industry exposed to international competition may be irreparably damaged by loss of international markets and being under-cut in local markets by cheap imports. When the tide eventually turns, and the dollar weakens, it would be difficult to restore those industries if key capital equipment and skilled jobs have been lost.
The US is a perfect example: China and Japan hold more than $2 trillion in US treasury investments which helped to suppress appreciation of their currencies against the greenback, maintaining a trade advantage which cost the US millions of manufacturing jobs. It will be difficult to restore those industries lost even if the imbalance is corrected.
Sound sense!I hope someone has the wisdom to act now before ts too late
2. Australia’s exchange rate is being manipulated by fx traders betting against the the RBA intervening to protect local industry by turning on he printinting presses despite this instrument being used with abandon by other economies and China refusing to let its currency float. The RBA is an ultra conservative organisation that is afraid to protect our traditional industries from the effects of the irrationally strong $A. Austalians have to be strategic and protect its industries from the long term impact of the manipulated $A. We will never be able to compete against what by our wage standards are the equivalent of contemporary slave labour being paid by emerging nations manufacturers and product dumping at near or below cost. These disadvantages are compounded by allowing the value of our dollar to remain 25% over valued. This is the equivalent of a export tarriff of 25% and an import discount of 25% all subsidised ultimateely by government having to pay welfare to the unemployed that the RBA policy will create. We need to start the presses now and keep them going until our industries are are competitive and sustainable. We cannot fantasise assume that idealistic economic rationalism is universally observed and adhered to when the evidence is that greed, nationalism and self interest are the drivers of real world economics. Every concession we make must be matched by our competitors or we will become victims of a cruel con job. At present we inflict disadvantage on ourselves via unilateral compulsive adherance to economic rationalist theories regardless of the consequences we stand back and watch industry after industry fold or flee our shores, we close Tafe colleges, we decrease R&D budgets, we obsess about budget surpluses whilst destroying the means of creating them. What would you expect from an RBA that beleives the way to success is by paying secret commissions, these same “experts” are in charge of the levers that control our national economic fate. We are bribing our competitors with a 25% advantage whilst we allow the $A to stay over valued. Urgent leadership is needed to stand up to the pointy heads and protect our society and living standards. Ian M.
Good post but I disagree with “What would you expect from an RBA that beleives the way to success is by paying secret commissions”
That is a subsidiary of the RBA — not the board.
What would a 25% decrease in the A dollar have on the inflation rate?
The consumer price index would rise but not by the percentage increase in AUD price of imports. We have to take into account that imports only account for 20% to 30% of aggregate demand.