FXstreet.com (Barcelona) - On the surprisingly good Australian
approvals data, which has come down to -2.5% in June vs very strong
+27% in May, basically dashing any slim possibility of an RBA cut
in August, the Australian Dollar has finally, after a few minutes
of consolidating above 1.0500, found plenty of bids to extend gains
vs the US Dollar to 1.0522, new 4-month high.
Next resistance of note may be found at 1.0530 (closing levels end
of March this year, Jan 30 low).On the downside, expect 1.05 round
number to provide support on pullbacks.
The castle of big expectations being built up in the market on
further easing by ECB, and more hints by the Fed, best translated
in the high beta AUD/USD hefty levels, is most likely to be
sustained as long as Central banks deliver on expectations later
this week, especially on ECB high ones, eyed to communicate bold
aggressive action thru either keeping alive the ESM baking licence
risk takers dream, bond buying program resumption (a lot of talk
about it), or another form of keeping up the market mood would be
further LTRO with looser collateral requirements.
The bottom line, however, is that the big bazooka the market might
have been setting in for is the ESM banking licence, as Standard
Chartered research team exposes, yet it seems as some tough
hurdles/opposition from policial forces in northern Europe are
still to be overcome. Has the market got ahead of itself? Perhaps
it's a bit premature to fully speculate on the ESM classified as a
banking entity at this stage.
However, if Draghi is capable of sticking to bold rhetoric on this
possible policy response by Sept, chances are the market will be
happy enough to extent risk wings as ESM will be able to borrow
unlimited funds in theory from the ECB. If instead, ECB informs IS
ready to buy bonds or do LTRO, while positive for risk, be mindful
that plenty of that is currently being disccounted. The rally in
risk may extend a few more days, but legs may come with expiry
If ECB stays pad without delivering on recent 'stronger action'
hints, then get ready for some nasty sell-off in the Aussie, as the
market will surely be disappointed.