Australian and Eurozone GDP Figures Weigh on Sentiment; FTSE 100 Falls Through Critical Support

GDP figures out of Australia showed that growth slowed in the previous quarter, coming in at a rise of 0.4 percent (against expectations of 0.8 percent).  Figures for the previous quarter were also downwardly revised and the lower growth rate is being attributed to a decline in housing prices, which is weighing on consumer spending activity.  Bond yields dropped after the release and the Australian Dollar fell to a two-month low against the US Dollar.  The report came after similar figures were released in the Eurozone, which showed that GDP dropped to 0.3 percent on a quarterly basis, which is the lowest print since 2009.

Adding to the slowing momentum in growth for Australia was the decline in demand for commodities in Asia as the sovereign debt crisis in Europe led many to speculate on the possibilities of contagion effects throughout the region.  During the same quarter, the Reserve Bank of Australia (RBA) also decided to reduce interest rates on two separate occasions.  At its latest meeting, the RBA reversed this loosening bias and left interest rates steady but with today’s weaker data, some analysts will raise their expectations for additional rate decreases before the end of the year, as the previous rate decisions did little to spur momentum in consumer spending.  The next key event for the region will be seen on Thursday, when employment data for the month of February is scheduled for release (with markets calling for an unemployment rate of 5.2%).

Also seen on Thursday is the Greek Private Sector Initiative (PSI) deadline, where disagreements over the extent to which the private sector should shoulder the costs associated with the bailout in Greece will need to be resolved in order for sentiment and equity markets to see another run higher.  Any political disagreements (likely resulting in an eventual postponement) will likely bring a negative close for the week in the Euro and global stock prices.

Rounding out the heavy event risk calendar on Thursday will be the slew of central bank meetings scheduled for the day, with the Reserve Bank of New Zealand, Bank of England, European Central Bank and the Bank of Canada all on tap.  All of these meetings are expected to result in “no change” in interest rates, so the majority of the market’s attention will center on the accompanying policy statements.  The level of optimism or pessimism seen in these releases will be key for traders into the close of the week.


Technical Analysis:


The AUD/USD has taken a nosedive on the daily charts with prices dropping more than 300 points from the yearly highs seen above 1.08.  We are now viewing this area as a long term top and any approach of this level will be seen as an excellent selling opportunity.  Key support at 1.06 has now been broken and this is the main evidence that a longer term top has formed.  Prices now target Fibonacci and historical support now coming in at 1.0390.

The FTSE 100 is now showing follow through (just as we had written previously) after breaking support at 5840, where losses began to accelerate.  This area will now be viewed as resistance and sell positions can be taken into this region.  Prices did manage to fall to key Fibonacci support where prices bounced (at 5730) but the strong bounce here should bring caution to short term bears.  Selling rallies is the preferred strategy.