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AUD/USD: taken lower on ECB shocker

Discussion in 'Fundamental Analysis' started by FXStreet_Team, Dec 3, 2015.

  1. FXStreet_Team

    FXStreet_Team Well-Known Member Trader

    Oct 7, 2015
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    FXStreet (Guatemala) - Despite the Aussie trade balance overnight with a decline in exports m/m and the shorts on the back of Chinese services, AUD/USD was a steady climb from early Tokyo morning after falling below the 0.73 handle for the first time this month. AUD/USD managed a score of 0.7350 in the volatility leading into the ECB shocker.

    AUD/USD was first whippy in a tight range on the 0.73 handle with 30-10 pip swings in a volatile market before (FT leak and incorrect information) and after Draghi indeed shocked the markets, but not in the way that might have been anticipated. AUD/USD then made a decisive direction to the downside as the euro rallied, with bears breaking below the 0.73 handle scoring news lows for December at 0.7283.

    ECB shocker - broken down

    Draghi shocked the market that was looking for a 10-20 basis point cut in the deposit rate and expansions in easing with a dovish and bearish outlook from the press conference in inflation and growth. But that was not exactly delivered.

    First of all, the deposit rate was only cut to -0.30% and by just 10 basis points, the lower end of the scale of expectations, and the euro shot higher to 1.0692 from 1.0609. Covering took place.

    The general region of a €10-20bn increase in QE was expected and the euro was at 1.07 leading into the presser and announcements. The big shock, however, came when Draghi did not add extra QE and only moved the end date of the current programme. (The ECB chose to extend its monthly asset purchases by seven months up to March 2017 or “beyond if necessary”). The euro shot through 1.08 and more so as the presser went on and in the subsequent aftermath to recent highs of 1.0893. The ECB was bullish on the economy on raising its forecast of 2015 GDP to 1.5% from 1.4%. Inflation, however, for 2016 was lowered from 1.1% prior to 1.0% and 2017 has also been lowered from 1.7% by 0.1%.

    What's next catalyst for AUD/USD?

    We now await retail sales as the next catalyst in the Aussie and Nonfarm Payrolls tomorrow. The Nonfarm Payrolls was set up to be a good one yesterday with the ADP report as a positive prelude data tomorrow and to the FOMC later in the month while Yellen was already out yesterday carving out the potential of a hike. Today she is testifying to Congress and stressed the mandate on jobs and inflations, but said that that the Fed might be close to raising rates above zero.

    AUD/USD downside levels

    Below the 200 DMA, at 0.7462, the bias remains to the downside. Technically, the price is making fresh lows for Dec below the key psychological 0.73 handle, the 100 SMA at 0.7270 on the hourly time frames come as the next potentially strong level of support. Below there is the 200 SMA at 0.7247.

    The key 0.7200 psychological level is next concern for the bears where the 100 DMA is located at 0.7194. A subsequent break of the 55 DMA at 0.7162 would open up territory towards the 0.7017 November low and the September low at 0.6940.
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