Charts Tilting, But Not Yet Fully Tilted For USD Strength

 | Oct 09, 2012 02:57AM ET

The USD is on the rise again, but today is an awkward “half holiday” (closed bond market due to banking holiday) in the US, so we may not get out answer on the status of the USD until mid-week.

Today is one of those banking holidays in the US that means the bond market is closed, but that the equity market is open. But with Friday offering up such an interesting close, the market has been trying to press its case a bit, as EURUSD fell in earnest early in the day and the JPY drifted noticeably back to the strong side as well. But a bounce in risk and a weaker USD towards the early US hours suggests we may have to wait until tomorrow’s action before we get more decisive moves here (a firmer move below 1.0150 in AUDUSD, for example, or a potential follow-up move higher in USDCAD after Friday’s reaction to Canada’s strong jobs report. And in EURUSD, the 1.2950/1.3000 zone is shaping up as a pivot area) In other words, we got the set-up with the Friday close, but we’ve yet to find full confirmation that the top is in here for risk appetite/bottom is in for the USD, though the evidence is leaning that way.

China’s Services PMI and Aussie
The HSBC measure of strength in the Chinese services sector showed a stronger than expected reading, and the Aussie finally started showing a little resilience in today’s European session, though if we look at the rate picture in Australia, there was hardly any reaction, and precious metals sold off again today, even if volatility wasn’t particularly pronounced. An interesting story that has gotten a bit of press lately is the pressure on Australian banks, whose costs are “relentlessly” increasing as depositors are still paid at relatively high rates in Australia. This article from BusinessWeek makes everything sound like smooth sailing, but Australian banks will be hard pressed on funding if risk appetite weakens from here, and it is interesting to note how much the Aussie has weakened of late in broad terms despite nose-bleed levels of complacency. Imagine what the currency would do if actual worry was evident in the standard global measures of risk…. So keep an eye on risk appetite, precious metals and now perhaps Australia bank share prices as well as general confirming indicators on the direction in Aussie from here. I’m actually wondering if it isn’t time for NZD to play a little catchup, particularly on the NZDUSD reversal on Friday and as the sub-0.8200 support areas are in play.

Chart: NZD/USD
This chart has been on a bit of “artificial” support from a wild sell-off in AUDNZD, but Friday’s reversal may finally be seeing the pair tilting fully back into the old range toward 0.8000, provided US equity markets don’t launch yet another rally attempt to new highs for the year. This 0.8150/0.8200 area looks pivotal for the near term outlook for NZDUSD.