The Euro is moving lower against most of its major counterparts after news that Standard & Poor’s has placed 15 Eurozone countries (including the six nations with AAA long term ratings) on credit watch, with downgrades possible for economies that fail to prove that their budgets are sustainable and that debt obligations will not be disrupted as a result of the region’s recent crisis.
The main story overnight was the Reserve Bank of Australia monetary policy decision (which resulted in a rate cut of 25 basis points). This is the second month in a row that the RBA has made interest rates more accommodative and the AUD dropped nearly one percent before the close of the session. Moves like this are generally positive for equity markets but this was not the case yesterday, as markets continue to remain focused on global debt proliferation and the rate change in Australia is apparently being viewed as an official confirmation that yearly growth prospects remain weak.
Yesterday’s releases showed a monthly drop in UK Retail Sales of 1.6% for November and this is being viewed as significant because of the 0.6% decline that was posted in October. Strength in consumer spending will be vital for market performance during the remainder of the year, so the data will likely lead analysts to revise December forecasts lower. In Australia, the current account deficit for the third quarter showed improvement at 5.6 billion Aussie Dollars (from 6.6 billion previously. The improvement likely came from the region’s weaker currency, which has come off sharply from the 1.10 level that was seen in AUD/USD earlier in the year.
Most of the important macro data today will come from the Eurozone, with German Factory Orders, Eurozone GDP and Swiss CPI all on schedule. Both the DAX and CAC futures are pointed toward a lower open, so any positive surprise in the GDP data could bring a reversal. But since we are coming into the middle of the week, market attention will start to focus on headlines created by the ECB monetary policy meeting as recent comments from the French and German Presidents (Sarkozy and Merkel) have called for a redefined EU treaty as a means for increasing regional cooperation and giving the ECB additional authority to implement debt reduction strategies.
The AUD/USD continues to show a bearish picture despite the recent corrective rally, with prices unable to overcome Fibonacci resistance at 1.0330. This area is also where the 100 and 200 period EMAs are clustered, so we expect prices to be contained here going forward. Any declines here could be substantial, as the indicator is bearish and showing negative momentum. Current levels are acceptable for sell entries. First support comes in at 1.0150.
The FTSE remains at elevated levels but so far markets have been unable to push prices past historical and trendline resistance at 5630. A break here would be significantly bullish and accelerate gains but until that occurs, our bias is to the downside. First support is seen much lower at 5340.