Aussie Dollar and Market Wrap – ASX on key support

I posted my Weekly Aussie Dollar Wrap over a MacroBusiness earlier this morning you can find it here.

Essentially at the moment the AUD is a story of a currency constrained between the competing forces of a weak USD but concerns over a re-acceleration of risk aversion and growing concerns about the commodity complex. last night’s post non-farm payrolls trade captured almost the entire weeks range and spoke volumes of these competing forces as weak data initially knocked AUD lower but the EUR’s rally, USD weakness, on the back of news that Greece is apparently going to get its money saw AUD close this morning at 1.0716. 

On the equities market the Dow was the bellwether falling 2.33% or 290 odd points. Our equities here in Australia are right on important technical support as the chart below shows. While this line doesn’t go all the way back to the low in march 2009 it is pretty important because this is the 6th test of its support.

 

Some readers may raise an eyebrow to our discussion of “technicals” but for traders and money managers technicals such as trendlines, Fibonacci ratios, momentum indicators, overbought/sold indicators, moving averages and so on are important directional indicators. Equally important is the fact that we ALWAYS respect lines until they break.

So next week’s price action globally and at home will be important as is this area between the trendline at 4578 and Fibonacci support at 4522 if that lower level gives way then you’d expect the recent low around 4485 as support but then it could slip to 4367 which is the next Fibonacci support.

On the interest rate front markets are tooing and froing about the RBA and its intentions. We continue to believe that the domestic/household economy is weak and under pressure. We simply can’t reconcile a steadily and sustainably growing household sector with rising mortgage arrears. Our analysis, some might say data mining, tells us that the retail sales were heavily distorted by the floods and insurance claim payments as we wrote earlier in the week.

But for the market, which is only pricing in one interest rate hike of 25 bps in the next 12 months there doesn’t seem to be any difficulty at all. They do not believe the RBA is about to tighten.

We hope not too and we are heartened by Treasury Secretary Martin Parkinson’s comments that the economy isn’t all mining – even if rivers of gold are going to flow from it for many years. Don’t forget he’s on the RBA Board now. Is this the Government’s very subtle push back to an aggressive RBA stance and rhetoric? We’ll be waiting patiently for the RBA’s communique after its Board meeting next Tuesday at 2.30pm to see. 

Have a great weekend and a good week.

greg@lighthousesecurities.com.au

www.twitter.com/gregorymckenna

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  1. Australian Market Weekly Wrap | Lighthouse Securities - June 11, 2011

    […] as yet a threat not a reality. The ASX has comprehensively broken the support we talked about in last week’s wrap and the global bond rally tells us that the market is starting to bet with the data as they […]

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