Daily Report: Dollar Strong Before Long Weekend

Risk appetite was given a strong boost overnight by the strong US employment data. DOW closed 92.02 pts higher at new record high of 17068.26. SP 500 also jumped 10.82 pts to close at new record high of 1985.44. Positive sentiments carried on in Asian session with broad based rally in equities. Meanwhile, treasury yields also jump with 30 years and 10 years yield taking out recent resistance. Dollar was bot broadly with dollar index breaking 55 days EMA, neutralizing June’s bearish move. The US markets will be on holiday today and we’d likely see some consolidative trading before the week closes.

Euro, on the other hand, is mixed. The July ECB meeting mainly focused on the technical details of the easing measures it announced in the previous month. President Draghi indicated the conditions attached to the TLTRO were rather lenient. Draghi also suggested that the aim of lowering the deposit rate into negative territory was to keep the corridor at 25 bps and to avoid any negative repercussions on interbank market volume that could follow any further narrowing. On the preparatory work related to outright purchases of ABS, he noted that a precondition for the ECB to launch such program is a reduction in regulatory capital requirements for financial institutions’ ABS holdings. Moreover, the ECB announced that it would reduce the frequency of its meetings to once every 6 weeks from January 2015 onward and it would publish regular accounts of the policy meetings. More in ECB Clarified On TLTRO, Loose Conditions Should Raise Sentiment.

Daily Pivots: (S1) 0.9302; (P) 0.9372; (R1) 0.9416; More…

Intraday bias in AUD/USD remains on the downside for the moment. Current development argues that a short term top is already formed at 0.9504. Deeper fall would be seen back to 0.9211 support. Bearish divergence condition in daily MACD suggest that the rise from 0.8659 has completed already. But, as long as 38.2% retracement of 0.8659 to 0.9504 at 0.9181 holds, we’d view price actions from 0.9504 as sideway consolidation only. On the upside, above 0.9427 will bring retest of 0.9504 resistance instead.

In the bigger picture, price actions from 1.1079 are viewed as a medium term correction. Recent development argues that it’s possibly finished at 0.8659 on bullish convergence condition in weekly MACD, ahead of 50% retracement of 0.6008 to 1.1079 at 0.8544. Rebound from there would extend higher to 38.2% retracement of 1.1079 to 0.8659 at 0.9583 first. Sustained break there will confirm this case and target 61.8% retracement at 1.0155 and above. However, break of 0.9080 near term support will dampen this bullish view and would likely extend the correction from 1.1079 to a new low.

AUD/USD 4 Hours Chart

AUD/USD Daily Chart

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