Aussie rebounds as Spanish auction eases concerns

The Australian dollar is the top performing currency against a weaker greenback ahead of the US open with an advance of more than 1.08%. Risk appetite has gone back on the offensive today after a German business optimism survey topped estimates and a Spanish bond auction saw yields fall sharply as demand surged. The auction comes ahead of tomorrow’s ECB three-year liquidity offer where in an unprecedented move the central bank will offer unlimited credit lines at an ultra-low rate of just 1% to banks. EU Leaders hope that the added liquidity will encourage banks to purchase sovereign debt after ECB President Mario Draghi floated the idea yesterday in his testimony before the EU parliament. This "synthetic" carry trade eased immediate concerns of a credit crunch with improved market sentiment fueling a rally in risk assets early in the session.

The AUD/USD broke out of the descending channel formation dating back to December 9th before encountering resistance at the 50% Fibonacci extension taken from the November 13th and December 8th crests at 1.0035. A breach here eyes subsequent resistance targets at 1.0080, the 38.2% Fibonacci extension 1.0115, and 1.0150. Interim support rests at parity backed by the 61.8% extension at 9955, the 0.99-figure, and the 76.4% extension at 0.9855. Our medium term bias remains weighted to the downside with today’s rally likely to offer idea entry for future shorts.

Key Levels/Indicators

Level/Indicator

Level

100-Day SMA

1.0093

50-Day SMA

1.0206

20-Day SMA

1.0289

2011 CAD High

0.9406

The Japanese yen is the weakest performer against the dollar with an advance of just 0.20%. As we have noted in the past, dollar losses in risk-on markets continue to outpace those of the yen which fell against all its major counterparts save the greenback. Risk-off environments such as the one seen yesterday, will continue to benefit the reserve currency more so as yen advances remain tempered on intervention concerns.

The USD/JPY broke below the 77.85 support level in pre-market trade before encountering trendline support dating back to the December 8th low. A break below this level eyes subsequent support targets at 77.65 and the 23.6% Fibonacci extension taken from the October 30th and November 18th troughs at 77.50. Topside interim resistance now stands at 77.85 backed by the 38.2% extension at the 78-handle and 78.25. Look for the pair to hold a tight range in US trade with a shift back to risk aversion likely to provide some support for the pair. Our medium-term bias remains weighted to the topside as we head into the new year with European debt concerns and domestic issues here in the US likely to weigh on broader market sentiment in the weeks ahead. Overnight traders will be eyeing data out of Japan with November merchandise trade and the BoJ interest rate decisions on tap.

Key Levels/Indicators

Level/Indicator

Level

100-Day SMA

1.0231

50-Day SMA

1.0176

20-Day SMA

1.0036

2011 AUD High

1.1079

Michael Boutros, Currency Analyst for DailyFX.com is a Technical/Fundamental Analyst specializing in the FX markets. E-mail: mboutros@fxcm.com.

Twitter: @MBForex
WEB: www.DailyFX.com

About the Author
Michael Boutros Michael Boutros, Currency Analyst for DailyFX.com is a Technical/Fundamental Analyst specializing in the FX markets. E-mail: mboutros@fxcm.com.
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