In central bank activity seen overnight, the Reserve Bank of New Zealand opted to hold its interest rates at 2.5 percent at its latest monetary policy meeting, with comments from the bank’s governor (Bollard) who said that rate policy will need to be kept accomodative in light of this year’s slowdown in growth. There were some changes in the policy statement, however, as there was no mention that the bank feels the New Zealand Dollar (which had been referenced in the previous statement) and this put some buying activity back into the currency.
There were also some new headlines relative to credit downgrades in Spain, as Moody’s reduced the country’s long term credit rating by three levels (to Baa3, which is only one level above “junk”). This downgrade was based on the argument that further aid will likely be requested by the Spanish government and because of this, further downgrades are still a possibility. In addition to this, Egan Jones also reduced Spain’s credit rating (to CCC+) and the agency now views Spanish bonds to worthy of “junk” status. These downgrades sent the Euro lower, back below the 1.26 level.
Into the weekend, the main story will continue to be developments seen in the Eurozone, as regional bond markets are starting to show increases in volatility, and this includes even the larger economies of Germany and France. Italy did have a reasonably successful bond auction on Wednesday but yields remain much higher than they were at this time last month.
This activity is likely a precursor response to the main event, which will be the Greek elections held on June 17th. This event is having enough of an influence that many brokers are actually halting trading activity over the weekend, even in cases where weekend trading is allowed. This uneasiness is being seen on the ground in Greece as well, as news reports show that deposit withdrawals from banks are reaching unprecedented levels.
This activity does not bode well for the prospects of the Euro in the near term, with may analysts now revising downward their end of the year projections into well below 1.20 in the EUR/USD. Ahead today, remain watchful of the monetary policy assessment from the Swiss National Bank, as their statement could be interesting in light of its policy initiatives to keep the Euro supported in the EUR/CHF currency pair.
The AUD/USD is starting to look like a very attractive sell, at least in the short term as prices are approaching a triple top just below parity. Risk to reward is highly favorable on a trade here, as the downside target comes in at least as low as 0.9850 and stop losses can be kept relatively tight, as there is likely to be some short term momentum buying if prices trading above 1.00.
Gold is approaching critical resistance levels, now seen at 1630 and this coincides nicely with the EMAs that are seen on the daily charts. A break here would be very bullish and likely send prices to a test of 1660, followed by 1710.