Daily Report: Focus in CAD and European Crosses, RBA on Hold

The greenback continues to consolidate today as on the one hand, markets are still digesting last week's sharp gain. On the other hand, dollar is being pressured by strength in oil prices which saw another record high above $120 a barrel. Meanwhile, the Canadian dollar is broad stronger on oil prices too. Nevertheless, the overall picture is still consolidative. That is, the current price actions in the markets are generally viewed as consolidations to dollar's rally as well as Euro's fall, which are still expected to resume after the current consolidations.

Meanwhile, European cross activities main take center stage today with focus mainly on European data. Services PMI in Eurozone is expected to improve slightly from 51.6 to 51.8. Meanwhile Services PMI in UK is expected to drop slightly from 52.1 to 51.6. Eurozone PPI is expected to climb from 5.3% yoy to 5.6% in Mar. EUR/GBP recovers strongly after correction from 0.8098 reached 0.7765 last week. While some loss of intraday downside momentum is seen in 4 hours chart, the correction is still in favor to extend low as long as the current recovery is limited below 0.7947 resistance.

With strong oil prices as background, markets will also pay close attention to Canadian data today, in particular Ivey PMI which is expected to drop considerably from 59 to 54.5 in Apr. Building permits is expected to rebound by rising 1.4% in Mar. Though, USD/CAD is still bounded in wide range consolidation and today's data is not likely to trigger any break out yet.

Released in early European session, Swiss CPI moderated from 2.6% yoy to 2.3% yoy in Apr. The Swissy remains in tight range against dollar, Euro and Sterling. But after all, there is no sign of reversal of recent weakness yet. The Swissy will likely remain pressured broadly by improved investors' appetite as well as weakness in Euro.

RBA left interest rates unchanged at 7.25% as widely expected. The accompanying statement suggests that even though headline inflation rose to a seven year high in Q1, RBA is satisfied that "evidence is accumulating" that "growth in aggregate demand" will be "significantly slower" in 08 and will "reduce inflation over time". This is taken as an indication that RBA will be on hold for the time being. Trade deficit narrowed more than expected to -2.7b in Mar with exports climbing 4.4% mom, imports rising 1.0% mom. AUD/USD's break of 0.9472 resistance today is taken as an indication that correction from 0.9541 is finished and focus is now back to this 24 year high.

AUD/USD Daily Outlook

Daily Pivots: (S1) 0.9383; (P) 0.9424; (R1) 0.9508; More

AUD/USD's rise from 0.9275 extended further to as high as 0.9482 before retreating mildly. Break of the inner falling trend line as well as 0.9472 resistance suggests that consolidation from 0.9541 should have completed at 0.9275 already. At this point, further rally is expected to retest 0.9541 high first. Break will confirm recent up trend has resumed. On the downside, below 0.9389 support will dampen this view and argues that consolidation from 0.9541 is still in progress. Nevertheless, short term outlook should still be mildly bullish as long as 0.9252 cluster support holds (50% retracement of 0.8953 to 0.9541 at 0.9247).

In the bigger picture, outlook is tricky as AUD/USD fails to sustain above 0.9469 high despite making new 24 year high at 0.9541. Also, upside momentum is so far unconvincing with bearish divergence conditions in daily MACD & RSI, as well as weekly MACD and RSI too. Focus should now be on the short term rising trend line (0.7675 to 0.8512, now at 0.9031). At long as this trend line support holds, recent up trend should still be in force. Such rally is treated as resumption of long term up trend from 0.4773 (01 low) is still expected to extend further to next medium term target of 100% projection of 0.4773 to 0.8008 from 0.6773 at 1.0008 which overlaps with parity.

However, break of the mentioned trend line support will argue that price actions from 0.7675 was probably in form of a diagonal triangle which was already completed at 0.9541. This will also argue that rally from 0.7015 has also completed with five waves up to 0.9541 too. In other words, 0.9541 should be an important medium term top in such case, deeper decline should then be seen at least to 0.8870 medium term resistance turned support.

Forex News Digest

• Australia's Reserve Bank holds the official interest rate at 7.25%
• Australian goods and services deficit narrows in March to A$2,736 million
• Fed's Bernanke Says Foreclosures Must be Averted for Sake of Economy
• The Day Ahead Canada & U.S.: Canadian Ivey PMI and Building Permits
• The Day Ahead Europe & UK: UK and Euro Zone PMI
• CA Preview: Ivey PMI Expected to Decline, But Upside Surprise Not Ruled Out
• BOC Deputy Governor Says Monetary Policy has Dulled Exchange Rate Effect
• Dollar Declines as Bernanke Signals Growth to Slow on Mortgage Defaults
• Australia, New Zealand Dollars Gain as Outlook for Rates Lures Investors
• Yen May Rise to 100 Per Dollar as Housing, Global Growth Slows, UBS Says

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