In the last three weeks whilst I was vacation, I noted that the fundamental aspects remained unchanged on the whole but the Dollar surged to higher levels with light trading volume. European currencies were the losers. The Euro broke 1.1870 – the low since June 2010 and British Pound hit the 1.50 level against the Dollar last week shortly after it confirmed the breakout of the 1.56 support level.
The divergence of monetary policies between advanced economies remains. The US and UK may raise their interest rates this year, while Japan and the Eurozone may be struggling in stagnation and will have to introduce more stimulus programs.
The expectation of deflation in the Euro area is still increasing, urging the ECB to move faster. Also, the Nationalists are still leading the competition in the Greek election, raising concerns that Greece may quit the union. Under this background, the 1.15 level may be the next target for the Euro/Dollar.
The Sterling is being dragged by a weak Euro. A short term reversal has happened. The pair may bounce back to 50% Fibo level around 1.53.
The Aussie Dollar also got hit by plummeting commodity prices. However, the 0.80 level has supported the Aussie. A “double top” has been formed in the H4 chart, indicating the pair may rebound to 0.83-0.84 in the next few trading days.
As to the stock markets, the Chinese market has started consolidation as funds were withdrawn to a new wave of IPOs. The Shanghai Composite slumped 1.71% to 3229. ASX 200 fell as well by 0.78% to 5423. The Nikkei Stock Average gained 0.18%. The UK FTSE closed as unchanged yesterday, the German DAX surged 1.38% and the French CAC Index rocketed 1.18%. The US market fell as oil prices hit fresh lows. The S&P 500 closed 0.81% lower to 2028. The Dow lost 0.54% to 17639, and the Nasdaq Composite Index dropped 0.84% to 4665.
On the data front, China’s trade balance will be released today, which may affect the movement of Aussie Dollar. UK inflation data will be at 20:30 AEDST. The data may help the sterling bounce to higher levels if it is higher than expected.
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