European debt headlines are carrying over into the new trading week but we are seeing some new additions from their US counterparts as the “super committee” in the lower house of government is dealing with voting deadlines to streamline the country’s fiscal deficit. It is looking like the Congress will be unable to construct a clear majority and a failure to pass this vote will trigger drastic cuts in many essential government programs (potentially limiting growth prospects). This is where the majority of the market’s attention will be focused as we start the week but these events are unlikely to be as jarring as the debt ceiling debacle that was seen over the summer.
In Europe, Spain elected a new government (led by the Popular Party) and this should be mildly encouraging for risk sentiment but the new Prime Minister (Rajoy) continues to make comments about rising funding costs in Spanish debt. The last bond auction in Spain shows that the country is following the same trajectory as Greece and Italy so markets will pay close attention to comments made by the new PM as a way of determining Spain’s next plan of action. The Euro did managed to post gains into the close of last week as on rumors of increased EU loan funds from the IMF but this rally was short-lived and the Euro downtrend has resumed on Monday.
In Japan, we will see the BoJ release the minutes from the October 27th monetary policy meeting, and this will be particularly relevant for currency markets as discussions centered on the bank’s asset purchase increases and the potential negatives of this year’s rally in the Yen. Any mention on additional intervention possibilities will likely see the JPY sell off (mostly against the US Dollar).
We also had some central bank headlines out of Australia, where the RBA Governor commented on mortgage rates, saying that current levels are appropriate and this is an implicit suggestion that we are unlikely to see cuts in interest rates before the end of this year. This should be mildly supportive for the Aussie Dollar but wider risk sentiment will be the guiding factor in how the AUD trades in the coming session.
The AUD/USD is continuing its strong downside move as prices are not coming through the daily 61.8% Fib retracement level at 0.99. We are not clearly through all of the psychological support levels, so a daily close below 0.99 would be significantly bearish over the longer term. Momentum indicators are crossing into negative territory, so we do have confirmation of these breaks. Sell rallies, first resistance comes in at 0.9985.
The FTSE 100 has now broken out of the descending triangle formation that we have been talking about, and, as expected, this break did accelerate losses. We have very little in the way of historical supports at this stage, so buy positions should not be considered until we reach the 61.8% Fib retracement seen at 5190. Resistance has moved down to 5410, and sell positions could be initiated here but an upside break would turn the medium term bias back to neutral and bring some consolidation.