EURUSD, equity markets – time’s running out

It definitely wasn’t the farewell Jean Claude Trichet imagined when he started his tenure at the helm of the European Central Bank. Not only he had to move away from certain principia during the final stage of his serve but even his official goodbye party was overshadowed by a meeting between Merkel and Sarkozy who used this opportunity to try and narrow differences that stop them from announcing a comprehensive package from Europe.

It might be a tactical move but market were worried yesterday that European leaders left the event without a comment especially as unofficial sources reported there was still a significant disagreement, even on the EFSF. If the issue of leveraging the fund is still not decided it might be even harder to find a consensus on more challenging issues (like debt reduction).

The futures of the S&P500 failed yesterday to move above 1229 pts. – a local high from the end of August and that was the third unsuccessful test this week. Fundamentally there is no good reason for the markets to rally above that resistance and that only adds to the credibility of a possible double top formation that might emerge on the chart. However, to confirm that pattern the market needs to break a neckline at 1185 pts. 

AUDUSD – the pair reverses from the resistance

One of the more interesting currency pairs as of late is AUDUSD not least because of its downward potential. It stems mostly from the similar potential for key commodities but also from domestic factors – Australian economy is slowing down and interest rate cuts are nearly certain.

The Aussie witnessed a strong corrective rally over the last two weeks as the global sentiment improved markedly. However, after reaching a clear resistance at the upper limit of the declining channel (ca. 1,03 at the moment) the pair has lost momentum. That might signal a reversal. Unless the resistance is broken within the next few days (and the EU summit might play a key role here) the pair might be eyeing 0,9370 again.

Przemysław Kwiecień PhD, Chief Economist

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