Category: Australia & NZ

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Forex update: Euro breaks support

The euro broke through primary support at $1.32, warning of another primary decline with a target of $1.22*. Declining 63-day Twiggs Momentum indicates a strong primary down-trend.
Euro

* Target calculation: 1.32 – ( 1.42 – 1.32 ) = 1.22

Pound Sterling is testing primary support at $1.54, while 63-day Twiggs Momentum is below zero. Failure of support would signal a primary decline to $1.46.

Pound Sterling

* Target calculation: 1.54 – ( 1.62 – 1.54 ) = 1.46

The Aussie Dollar retreated below parity, indicating another test of medium term support at $0.97. Failure would test primary support at $0.94/$0.95. Respect of the zero line by 63-day Twiggs Momentum indicates a continuing primary down-trend. Weakening commodity prices, especially coal and iron ore, should strengthen the down-trend.

Australian Dollar

* Target calculation: 0.97 – ( 1.03 – 0.97 ) = 0.91

The Canadian Loonie is headed for a test of primary support at $0.94/$0.95. 63-Day Twiggs Momentum holding below zero suggests a continuing primary down-trend.

Canadian Dollar

* Target calculation: 0.95 – ( 1.00 – 0.95 ) = 0.90

A monthly chart of the Greenback against the Yen shows strong bullish divergence on 63-day Twiggs Momentum, suggesting reversal of the primary down-trend. Breakout above ¥80 and the descending trendline would confirm the signal.

Japanese Yen

The US Dollar continues in a strong up-trend against both the South African Rand and Brazilian Real, helped by falling commodity prices. Breakout above R8.60 would signal a further advance to R9.20.

South African Rand and Brazilian Real

* Target calculation: 8.60 + ( 8.60 – 8.00 ) = 9.20

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Westpac bulletin: Consumer sentiment falls

Westpac Melbourne Institute Index of Consumer Sentiment fell by 8.3% in December…….

Risk aversion increased markedly in this survey. When asked about “the wisest place for savings” 26.6% of respondents nominated “pay down debt”. That was an increase from 18.7% in September. Since we started measuring that component in 1997 there has only been one higher measure, in March 2010. Only 6.6% of respondents nominated equities – the lowest percentage since 1993; while the 14% nominating real estate was, apart from 2008, the lowest since the survey began in 1974.

Comment: ~ Equities at their lowest level since 1993 is a great contrarian indicator. There is still risk of further downside, so too early to invest at present, but this will be a good number to watch in 2012.

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Australia: The safe haven – macrobusiness.com.au

Yields on the 10-year Commonwealth bond hit a record intraday low of 3.78 percentage points yesterday…….CPI inflation for the September quarter was still running at 3.5%. That means investors are close to giving the Australian government money for free.

On top of that….. Investors seem happy to park their money with the Australian government despite the large risk that the dollar will take a serious tumble (though of course they are themselves mitigating that risk somewhat through their own purchases). If investors are separately hedging, which, frankly, they’re mad if they’re not, that will add further cost to the transaction, enough surely, to push the return negative.

via Australia: The safe haven – macrobusiness.com.au | macrobusiness.com.au.

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ASX 200 tests resistance

The ASX 200 rallied on news of EU progress and is headed for resistance at 4350. Breakout would offer a target of 4850* but weakness in China makes this unlikely.

ASX 200 Index

* Target calculation: 4350 + ( 4350 – 3850 ) = 4850

On the long-term (quarterly) chart it is clear that we are still in bear territory. Only breakout above 5000 would reverse the trend.

ASX 200 Index Quarterly

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Forex update

The euro is likely to re-test primary support at $1.32 against the greenback. Declining 63-day Twiggs Momentum, below zero, warns of continuation of the primary down-trend. Breach of support would indicate a primary decline to $1.22*.

EURUSD

* Target calculation: 1.32 – ( 1.42 – 1.32 ) = 1.22

Sterling rallied off primary support at $1.53/$1.54 against the greenback but 63-day Twiggs Momentum again warns of a primary down-trend. Failure of support would offer a target of $1.46*.

GBPUSD

* Target calculation: 1.53 – ( 1.60 – 1.53 ) = 1.46

Canada’s Loonie is headed for another test of resistance at $1.01 against the greenback. Declining 63-day Twiggs Momentum, however, continues to warn of a primary down-trend. Respect of resistance is likely, and would signal another test of primary support at $0.95. Declining commodity prices also favor a down-trend.

CADUSD

* Target calculation: 0.95 – ( 1.01 – 0.95 ) = 0.89

The Aussie Dollar appears stronger than the Loonie, which is unusual. Both are affected by commodity prices, but the Aussie tends to be more volatile  than its Canadian counterpart. Obviously, higher interest rates in the Southern hemisphere are an attraction. Again, 63-day Twiggs Momentum warns of a primary down-trend. And reversal below parity would warn of another test of primary support at $0.95.

AUDUSD

* Target calculation: 0.95 – ( 1.07 – 0.95 ) = 0.83

The greenback has strengthened sharply against the South African Rand and Brazilian Real. Both volatile, resource-rich currencies are likely to re-test their recent highs: the rand at R8.50 and the real at 1.90 against the dollar.

USDZAR

The greenback shows strong bullish divergence against Japan’s yen on 63-day Twiggs Momentum, warning of a reversal. Breach of the long-term descending trendline would strengthen the signal. Breakout above ¥80 would confirm.

USDJPY

 

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Heard on the Street: Australia’s Juggling Act – WSJ.com

Economists expect 2012 will see a slowdown in the economy of China, Australia’s biggest trading partner. China’s gross domestic product growth could slip to around 8% from more than 9% this year, which will lead to lower demand for commodities. Already, the Reserve Bank of Australia’s index of commodity prices—a weighted basket of Australia’s resource sector exports—has fallen sharply this year. The central bank says the economy’s resources-led surplus may have hit its peak and could decline “somewhat” from here.

via Heard on the Street: Australia’s Juggling Act – WSJ.com.

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The RBA gets hawkish on asset prices – macrobusiness.com.au

I believe that the RBA is determined to prevent any reinvigoration of the Australian housing bubble……. yesterday we had [] confirmation that the bank is structurally remodelling itself as an asset price hawk, with the appointment of Phil Lowe to the deputy governorship. In 2002, whilst working at the BIS [he] wrote a defining paper on the identification and targeting of asset prices….his history shows both the intelligence and fearlessness needed to be an effective senior governor. Bravo.

via The RBA gets hawkish on asset prices – macrobusiness.com.au | macrobusiness.com.au.

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ASX buying pressure

The ASX 200 index is once again testing resistance at 4350. Rising 21-day Twiggs Money Flow indicates medium-term buying pressure. Breakout would signal a primary advance to 4700*. Respect of resistance is less likely, but would suggest another test of primary support at 3850.

ASX 200 Index

* Target calculation: 4350 + (4350 – 4000 ) = 4700

The All Ordinaries is similarly testing resistance at 4400, while rising 13-week Twiggs Money Flow indicates long-term buying pressure. Breakout would offer a target of 4800*.

All Ordinaries Index

* Target calculation: 4400 + ( 4400 – 4000 ) = 4800

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Aussie dollar strengthens

The Aussie dollar recovered above parity, breach of the declining trendline indicating that the correction is over. Breakout of the CRB Commodities Index above 325 would be a bullish sign, suggesting another test of $1.08 against the greenback. Breakout above $1.08 remains unlikely, but would offer a long-term target of 1.20*.

AUDUSD

* Target calculation: 1.08 + ( 1.08 – 0.96 ) = 1.20

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Canberra is fighting the last war – macrobusiness.com.au

As we know, the Western world has passed an historic moment when credit driven growth is no longer viable. We are in the early years of a decades long deleveraging. And, as we know from the sectoral balances of macroeconomics, an economy can only grow through the expansion of the external sector or by expanding credit in either the government or private sectors. Is it useful, therefore, to be comparing Treasury’s triumphant victory over the seventies bogies of wage breakouts and inflation via a tradable goods destroying currency appreciation when the world is now set on a course in which the ONLY economic growth that has lasting value in this new milieu is that driven by expansion in the external sector?

For me the answer is absolutely not.

Treasury is busy fighting the last war. The new war is for export revenues to drive investment and growth to offset the enormous debt stocks that exist in the public and private sectors of Western economies, including Australia. That’s why destroying parts of your tradable goods sector in order to make room for other tradable goods is about as sensible as cutting off a leg so that you’ve lost weight. Sure you have, but now you just gonna sit there and eat.

via Canberra is fighting the last war – macrobusiness.com.au | macrobusiness.com.au.

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