Contributed By: DailyFx

AUD/USD: The market is not yet ready to abandon the strong uptrend, with the latest dips once again very well supported ahead of a surge back to parity. From here, the risks are for a break to fresh post-float record highs beyond 1.0000, but any additional strength is seen limited with medium-term studies looking stretched and continuing to warn of near-term exhaustion. Aggressive players can look to sell above 1.0000, while conservative bears may want to wait for confirmation and a break back below 0.9800 to look to get involved.

Contributed By: DailyFx

EUR/CHF: The market could finally have found a major base by the recently set record lows at 1.2765, with weekly and monthly studies starting to correct. The cross has finally managed a close back above some major falling trend-line resistance from May to further encourage the prospects for a shift in the trend and additional recovery over the coming weeks. Next key resistance comes in by 1.3925, while setbacks should be very well supported in the 1.3500 area.

Contributed By: DailyFx

EUR/JPY: The market has done a very good job of holding above the daily Ichimoku cloud to suggest that we could be on the verge of a material shift in the structure in favor of significant upside over the medium and longer-term. Daily studies are however in the process of unwinding from stretched levels, so the preferred strategy is to look to buy into dips rather than on upside breaks. A good level to look to establish a long position now comes in by previous resistance turned support in the form of the daily Ichimoku cloud top (currently by 111.00).

Contributed By: DailyFx

EUR/USD: The prospects for a head & shoulders top are fading following the latest break back above 1.4000, and the market is once again contemplating a fresh upside extension beyond 1.4160 and towards some major longer-term falling trend-line resistance by 1.4500 off of the record highs from 2008. For now, we will retain our bearish outlook and look for any rallies to be very well capped ahead of 1.4080, in favor of some renewed weakness. Key short-term support comes in by 1.3735 and a break below will be required to reaffirm outlook and accelerate declines.

Contributed By: DailyFx

GBP/JPY: A closer look at Ichimoku studies suggests that we are still very much in downtrend, with the market most recently breaking to fresh 2010 lows by 126.45. However, as mentioned in previous commentary, daily studies were looking quite stretched, and despite the break to fresh yearly lows, the latest sharp bounce suggests that overall, the market is very well supported in the 126.00’s on a medium-term basis. From here, we would not at all be surprised to see additional upside towards 135.00, but we prefer to remain sidelined given what is still an overwhelmingly bearish trend.

Contributed By: DailyFx

NZD/USD: A break to fresh yearly highs above 0.7650 seriously compromises our bearish outlook here, with the market now threatening a fresh upside extension back towards critical psychological barriers by 0.8000 over the coming days. However, while the market trades in he 0.7600’s and remains offered below 0.7700, we will hold onto our bearish bias and look for yet another topside failure ahead of some fresh downside. Back above 0.7700 negates, while below 0.7500 should confirm and accelerate declines.

Contributed By: DailyFx

USD/CAD: As expected, the market was very well supported on dips below parity, with the latest sharp bounce back above 1.0200 solidifying our constructive outlook and opening the door for significant gains over the coming weeks. Look for continued appreciation towards the multi-week highs by 1.0700 over the coming weeks, with only a break back below 0.9970 to ultimately negate outlook and give reason for concern. A higher low is now sought out in the 1.0100’s ahead of the next major upside extension to be confirmed on a break back above key short-term resistance at 1.0375. Look for the market to hold above 1.0100 on a close basis.

Contributed By: DailyFx

USD/CHF: With daily studies finally crossing up from oversold and the market managing to close back above the 20-Day SMA for the first time since August, we are encouraged with the prospects for the formation of a major base by the recently established record lows at 0.9460. From here, look for any intraday setbacks to be well supported on dips towards 0.9700, with the market now eying a move towards next key resistance by 1.0000 over the coming sessions. Inability a couple of weeks back to extend declines to yet another record low below 0.9460, set up a strong bullish reversal week to end a sequence of 9 consecutive weekly lower highs. This further strengthens our constructive outlook and over the medium and longer-term we see significant upside risk. The market is now looking to establish back above the 50-Day SMA for the first time since mid-June.

Contributed By: DailyFx

The Australian Dollar has spiked higher following a surprise interest rate hike by the Reserve Bank of Australia. In particular, AUD/USD is approaching parity, a significant level which has acted as resistance for the pair since mid-October.

The RBA has raised rates to 4.75 percent from 4.50 percent, where rates previously stood for six months. Markets were not expecting an interest rate hike at this meeting; overnight index swaps were implying only 28% chance of a hike, or equivalently, a 72% chance that rates would be held steady. Ironically, the situation was reversed at the prior meeting in October. At the time, markets were implying a 74% chance of a hike, but the RBA surprised with no hike.

Taking a look at the accompanying statement, the RBA noted that “the turmoil in financial markets earlier in the year has abated, though sentiment remains fragile.” The central bank was especially upbeat on the Australian economy, expecting “stronger private spending over the next couple of years, especially business investment.” But what really seemed to tip the scale in favor of a rate hike was the RBA’s belief that “inflation is likely to rise over the next few years.” All things considered, the bank felt that “early, modest tightening of monetary policy was prudent.”

Unsurprisingly, future interest rate hike expectations have risen substantially following the latest policy decision. Markets are now expecting 61 basis points of rate hikes over the next twelve months, which is on top of the 25 basis points we got today. Prior to the decision, only 44bp were expected, but that was excluding today’s 25bp.

Looking forward, it will be difficult to arrest the Australian Dollar’s advance as economic growth and interest rate differentials remain extremely supportive of the currency. The next big event risk is the highly-anticipated Federal Reserve policy decision. The risk to the Aussie is if the Fed comes out with a smaller-than-expected quantitative easing program. While it is difficult to gauge market expectations in this situation, market commentators have been bandying about a $500 billion figure. If the actual figure is substantially smaller than that, we may see a broad rally in the U.S. Dollar, which would have an adverse impact on AUD/USD. Otherwise, an outcome that is close to expectations will merely reinforce the extremely strong uptrend in the Australian Dollar.

USD Dollar (USD) – The Dollar traded mixed against the major currencies in Forex trading. The market will be unpredictable this week and we will see big movements at times, in very short periods, because we are still waiting for the FED meeting, the interest rate this decision, and the nonfarm pay rolls on Friday. The ISM Manufacturing Index came out at 56.90, better than the expected 53.60. The Stock Markets in the U.S. closed mixed with the Dow Jones rising 0.06% and the NASDAQ falling -0.10%. Crude Oil advanced by 1.9% against the dollar and closed at $82.95 a barrel. Gold (XAU) fell by 0.5% and closed at $1340 an ounce. Today, the Washington Post Consumer Confidence report is expected.

Euro (EUR) – The Euro weakened against the green back today after the ISM manufacturing Index came out at 56.90, better than the expected 53.60. Holding above the support level of 1.3930 keeps the momentum positive for the pair, and if the pair crosses the major resistance at 1.4004, it might reach the 1.4400 level in the next few days. Overall, EUR/USD traded with a low of 1.3864 and with a high of 1.4011. Today, German Manufacturing is expected unchanged at 56.10 and the Manufacturing PMI is also expected unchanged at 54.10.

EUR/USD – Last: 1.3933

British Pound (GBP) – The Pound gained against the dollar and was trading around the 1.6050 resistance level .The Manufacturing PMI came out at 54.90, better than the expected 53.00. Holding the rate above 1.6050 will keep the momentum bullish for the pound. Overall, GBP/USD traded with a low of 1.5989 and with a high of 1.6089. Today, the Construction PMI is expected at 53.00 vs. 53.80 previously.

GBP/USD - Last: 1.6061

Japanese Yen (JPY) – The Japanese Yen fell against the Dollar with the opening of the market early today in Asia.  The Monetary Base came out at 6.40%, better than the expected 5.60%. Trading above 80.50 will keep the momentum bullish for the Dollar. Overall, USD/JPY traded with a low of 80.33 and with a high of 81.43. No economic data is expected today.

USD/JPY-Last: 80.56

Canadian dollar (CAD) Canada’s dollar rose against the US Dollar  for a two week high, as the greenback is oversold before the meeting of the Fed this week. Trading below 1.0150 will keep the momentum bearish for the pair. Overall, USD/CAD traded with a low of 1.0125 and with a high of 1.0197. Today, no economic data is expected.

USD/CAD - Last: 1.0111