Currencies | Feb 10 2011
By David Song, Currency Analyst, DailyFX
Daily Winners and Losers
The Euro broke out of its recent range to reach a high of 1.3721 on Wednesday, and the single-currency may continue to retrace the decline from the previous week as it finds near-term support around 1.3500, the 50.0% Fibonacci retracement from the 2009 high to the 2010 low. The EUR/USD is 80+ points higher on the day after moving 76% of its average true range, but the two-day rally could be short-lived as the relative strength index falls back from overbought territory. In turn, the euro-dollar may consolidate going into the Asian trade, and we may see the euro-dollar fill-in the gap from the 120-SMA at 1.3616 before the pair attempts to make another move to the upside. This could certainly turn out to be a great opportunity to fade the intraday rally, but we could be also seeing a head-and-shoulders pattern in the works given the bearish divergence in the daily RSI. As the near-term rally in the EUR/USD tapers off ahead of the 61.8% Fib around 1.3890-1.3900, the euro remains at risk for a sharp reversal as it appears to have carved out a top in February.
Key Levels/Indicators
Upcoming Events
The Australian dollar pared the previous day’s advance, with the exchange rate slipping to a low of 1.0093, and the high-yielding currency may continue to retrace the advance from earlier this month as it appears to have carved out a near-term top in February. The AUD/USD remains 20+pips lower on the day after moving 56% of its ATR, and the sell-off in the exchange rate may accelerate throughout the North American trade as investors scale back their appetite for risk. However, as employment in Australia is expected to increase 17.5K in January, the ongoing improvement in the labor market could produce a bullish reaction in the AUD/USD, which could lead the pair to make another run at 1.0200. Nevertheless, we are likely to see the Australian dollar face headwinds over the coming months as China tightens monetary policy to prevent the economy from overheating, and the Reserve Bank of Australia may talk down speculation for higher borrowing costs as the region copes with the slew of natural disasters paired with the slowdown in global trade. In turn, a drop in interest rate expectations should translate into further weakness for the Australian dollar, and the AUD/USD may fall back towards 0.9800 as the pair looks poised to retrace the near-term rally.
Key Levels/Indicators
Upcoming Events
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