Aussie and Kiwi On Opposing Ends of Performance Scale in Wednesday Trade

The US Dollar has managed to find some renewed bids into Wednesday, with the Euro standing out as one of the underperformers after Moody's came out and placed three major French banks on review for a potential downgrade. Elsewhere, the Swiss Franc has been very well offered, with many market participants starting to book profit on what could be some overdone Franc moves after the currency recently broke to fresh record highs against both the Euro and US Dollar. Comments from the Swiss government on Tuesday expressing concern over the strength in the Franc, and downwardly revised Swiss growth forecasts from SECO have also undoubtedly been factoring into the weakness.

The Yen has also been sold off with USD/JPY once again showing just how well supported it is around psychological barriers by 80.00. Interestingly enough, Aussie and Kiwi are on opposite ends of the performance scale, with the Australian Dollar standing out as the strongest currency on the day thus far, while Kiwi is the weakest major currency. Although Australian consumer confidence data was weaker, market participants were more taken with a very hawkish RBA Governor Stevens who suggested that further rate tightening was needed.

Ironically, a solid retail trade print out of New Zealand did little to bolster the currency, with talk of the damage from the latest series of local earthquakes and a more subdued global macro investor risk appetite, weighing heavily on the market. The AUD/NZD cross has been finding some renewed strength in recent trade after dropping heavily down to test some multi-week range lows by 1.2800. Looking ahead, Eurozone industrial production and UK employment data are the key releases in European trade, while things pick up some more in North American trade with Canada manufacturing sales, US inflation, industrial production, capacity utilization, Empire State manufacturing and NAHB housing. US equity futures and oil prices are tracking lower while gold trades flat.

ECONOMIC CALENDAR

TECHNICAL OUTLOOK

EUR/USD: Rallies have stalled out just ahead of the 78.6% fib retracement off of the major 1.4940-1.3970 move, and the market could finally be in the process of carving out a fresh lower top by 1.4700 ahead of the next major downside extension back towards the 1.3970 recent trend lows. From here, look for a daily close below 1.4300 to accelerate declines, while only back above 1.4700 delays and gives reason for concern. Look for intraday rallies to now be well capped ahead of 1.4550.

USD/JPY: After undergoing a fairly intense drop off from the 85.50 area several days back, the market looks to have finally found some support in the 80.00 area and could be in the process of carving out some form of a base. Look for setbacks to continue to be well supported around 80.00 with only a close back below 79.50 to give reason for concern. From here we see the risks for a fresh upside extension back towards the recent range highs at 85.50 over the coming weeks and a break and close back above 81.00 will help to confirm.

GBP/USD: Rallies have been very well capped in the 1.6500's with the market looking like it wants to carve out a fresh lower top by 1.6550 ahead of the next downside extension below 1.6060. From here, look for intraday rallies to be well capped ahead of 1.6500, with a break back below 1.6200 to confirm and accelerate. In the interim however, we remain sidelined.

USD/CHF: Despite the intense downtrend resulting in recently established fresh record lows by 0.8325, short/medium/longer-term technical studies are looking quite stretched to us, and we continue to like the idea of taking shots at buying in anticipation of a major base. Look for a daily close back above 0.8470 to encourage bullish reversal prospects, while only a drop below 0.8300 delays.

Written by Joel Kruger, Technical Currency Strategist

If you wish to receive Joel's reports in a more timely fashion, email jskruger@dailyfx.com and you will be added to the distribution list.