The Australian Dollar is testing the lower border of its long-term (Raff Regression) trend channel against the greenback on a weekly chart. Expect strong support at parity. Recovery above $1.075 would suggest a rally to test the upper channel around $1.20*, while failure would warn of reversal to a primary down-trend.
* Target calculation: 1.10 + ( 1.10 – 1.00 ) = 1.20
First, from long term successful commodity trader Peter Brandt:
It has come to be known as the “risk-on/risk-off” or “all-one-market” phenomena in global markets. It is a situation where seemingly unrelated markets have taken on an historically high correlation. Individual markets seem to be the proxy for all other markets.
I have witnessed periods in the past when unusually strong correlations existed for months and months. But, I have never experienced the level of correlation we have lived with as traders since 2008.
via Chart of the Day: Decoupled from reason – macrobusiness.com.au
Note the rather large spread that’s opened up between the market’s expectations for the official cash rate and the BBSW rate.
…………To make the point about how unusual this situation is, let’s take a look at the spread over a longer time frame……. As you can see, the GFC is the only other period where this spread has blown out in this way.
………..The US and Great Britain, which led the interbank seizure in the last crisis, have risen mildly. Of the Western markets, only Australia and Europe have spiked in a way resembling the GFC.
via More on bank funding vulnerability – macrobusiness.com.au
What should be clear…… is that the growth in Australian housing values has been funded, to a large extent, by foreign borrowings, much of it short-term.
A key risk going forward is that the banks’ ability to refinance their borrowings rests with the willingness of foreign investors to continue to lend them money. But in times of heightened risk-aversion – such as the impending European debt crisis – foreign investors can become nervous and less inclined to continue extending credit, which could leave Australia’s banks, house prices, and broader economy exposed to a sudden funding freeze.
The recent seasonal adjustments to the CPI and the reduction in the level of underlying inflation blunts the force of the RBA’s recent argument about inflationary pressures. But, absent an offshore catalysing event, that alone won’t make them cut rates.
Rather I think that household retrenchment and saving will lower economic activity in the economy and that the RBA has overplayed the extent that the mining boom induced income will wash through the Australian economy.
Increasingly, we are getting confirmation of this theory. Unfortunately, we are seeing Australians lose jobs at an increasing rate. Data released yesterday by Westpac on consumer unemployment expectations suggests this is going to get worse.
The pound, affected by euro fallout, broke support at $1.59 to signal a primary down-trend. Expect a test of its December 2010 low at $1.53*
* Target calculation: 1.60 – ( 1.67 – 1.60 ) = 1.53
Flight to safety weakened the Australian Dollar which broke support at $1.04 against the greenback. Expect another test of parity. 63-Day Momentum crossing below zero warns that the primary up-trend may be reversing. Breach of support would confirm.
* Target calculation: 1.05 – ( 1.10 – 1.05 ) = 1.00
The Aussie Dollar is also testing support at $1.25 against its Kiwi partner. The primary trend is down and follow-through below $1.245 would indicate a down-swing to the lower trend channel over the next few months.
* Target calculation: 1.24 – ( 1.28 – 1.24 ) = 1.20
The euro found short-term support at $1.35 against the greenback but is now weakening. Failure of support would confirm the target of $1.30*. A peak below zero on the 63-day Momentum oscillator would confirm the primary down-trend.
* Target calculation: 1.40 – ( 1.50 – 1.40 ) = 1.30
“China is a poor country with only $4,000 per capita income,” Yu Yongding, a Chinese top economist and former member of the central bank’s monetary policy committee said in an interview in China. “To talk and think about China to rescue countries with $40,000 per capita incomes is ridiculous.”
China is ready to help, Mr. Yu said, “but European countries first should show that they have a clear road map and convincing policies to preserve the euro and solve their problems as well as the political will to make necessary sacrifices.”
via Europe Is Urged to Take Bolder Action on Debt – NYTimes.com.
China might have more to worry about. Wages in the low-skill manufacturing sector are rising fast. On their current trajectory, they will double in the next five years. Low-skill jobs have already started to migrate elsewhere and will continue to do so. Public spending on education, at 3% of GDP in 2009, compares unfavorably to an average of 5% in the grouping of upper-middle-income countries to which China aspires. Reform of the financial system has fallen by the wayside as banks continue to funnel savings to low-yielding state-sponsored projects.
via Heard on the Street: China’s Lessons From Mexico and Japan – WSJ.com.
