• Aussie dollar strength could start to attract speculative sellers;
• Euro bounces from lows overnight ahead of ECB meeting next week;
• Greenback moderately lower overnight as profit takers step in.
A resilient Aussie dollar is ‘talk of the town’ at present, particularly as the Greenback has shown remarkable strength in recent trading sessions. It is becoming increasingly apparent that negative rhetoric from the RBA in relation to a strong currency is unlikely to make a dent in Aussie strength, at least for as long as the Central Bank maintain their neutral policy bias, leaving the bears in search of catalysts for the local currency to break current trading ranges. A distinct lack of economic data this week has seen the Aussie firmly anchored to $0.93 and current ranges can be expected to continue, at least until a string of economic data is released next week. Volumes can be expected to jump as the northern hemisphere approaches the end of the notoriously quiet summer months and global economic releases will set the tables straight in currency markets, placing the Aussie dollar under the spotlight against major peers.
Technical analysts would argue that the EURUSD pair has been oversold in recent trading sessions and the overnight session supported such a view as traders seemed less concerned that the ECB will present additional monetary stimulus at next week’s ECB meeting. Euro strength was met with aggressive sellers above 1.32 and it is clear that sellers are waiting on the sidelines to take advantage of moderate Euro strength. Trade this week has largely been dictated by comments made at Jackson Hole last week which clearly outlined the ECB’s intentions to present the market with QE at some stage and I think what we saw overnight was a typical ‘dead cat bounce’. The Euro may have gained some momentum in the hope that the ECB will hold off in announcing a full QE package at next week’s meeting, however a ‘dead cat bounce’ never lasts long.
The risk of a short term pull back in US dollar strength has become evident in recent sessions and whilst this remains a short term possibility, continued strength in economic data and a more hawkish Federal Reserve clearly points to continued strength in the greenback. Overnight we saw some profit takers step in after recent gains but it would take a drastic change in the US economic outlook to attract the real shorts. Data next week is crucial to continued dollar strength with key manufacturing releases and labour market data all on the docket in the coming week.
[B]Tom Williams
Currency Analyst[/B]