|The dollar was stronger for most of the week against the Euro, Pound and Australian dollaras the theme of risk off, returned to the market place, reducing investor confidence. Commodities were under pressure, with gold and oil prices moving lower and equity bourses moving counter 2012 trends.
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The dollar is likely to remain firm next week amid concerns that the global economy is losing steam. This dynamic should continue to drive positioning adjustments. Technical momentum may be supportive for the dollar as well after most of the majors failed to break the top end of their recent ranges. This should result in a reversal in the price action and may lead currencies to test the bottom end of their recent ranges as positioning adjustment continues.
The flash reading of the euro zone PMIs disappointed expectations and failed to break the expansion level of 50, adding concerns that the economy has yet to stabilize. Germany’s manufacturing PMI even slipped to 48.1 from 50.2 in February. Next week, Germany’s IFO for March should help crystallize the near-term economic outlook.
The combination of the weak February retail sales report and the downwardly revised figures in January brings into question the recent resilience of Britain’s economy. The dovish surprise from the recent minutes also keeps open the possibility of another round of QE in May. The potential for further policy easing should remain a headwind for sterling against the dollar but our sterling outlook against the euro remains more constructive amid renewed concerns over the economic outlook in the euro zone.
Recent data disappointments in China (this week’s HSBC PMI Flash) have weighed on AUD/USD. Softer domestic data has also increased the probability that the RBA moves to cut interest rates in May. Expectations of a rate cut from the OIS have increased recently, with the OIS now pricing in roughly 60% chance of a rate cut in May, up from 48% last week. Current positioning also leaves AUD and NZD vulnerable to further adjustments.
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|The Australian Dollar Breaks DownThe AUD/USD broke through resistance levels near 1.046, and is now poised to test the 1.03 levels. Momentum on the currency pair is negative. The MACD, moving average convergence divergence index has a negative index and created a sell signal this week. The RSI is moving closer to the oversold level but is still within the neutral zone.
Gold Prices Under Pressure
Gold price test the 1630, support levels toward the end of the week, but were able to hold support level. With the 20-day moving average crossing below the 50-day moving average, additional negative momentum is likely to continue. This cross is generally a sign that a medium term trend is in place.
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