EUR/USD eyes 1.2650 resistance

EUR/USD has broken sharply higher through the 1.2610 initial resistance to put the important 1.2650 area (including down trendline resistance) under pressure. A break above 1.2650 will trigger another bullish signal suggesting that a bottom has been established, opening upside potential to 1.2720 initially and then target 1.2750.

Failure however to penetrate 1.2710/30 on a New York closing basis will again disappoint and force the euro lower, back to its base area of 1.2500. The same pattern may be evident on USD/CHf trading, which may find support at 1.2540.

Next week’s releases are now the focus. These include new and existing home sales as well as durable goods orders, Michigan sentiment and Q3 GDP. The Fed will also be in important. The Fed will need to shift to a neutral bias from a tightening bias for the market to significantly shake up its positioning on the USD.

News from Australia has remained on the positive side. New motor vehicle sales increased 3.0% m/m in September more than offsetting a 2.2% decline the prior month. The y/y rate improved from -5.4% to -3.0%. Meanwhile, Australia’s import price index declined just 0.3% q/q in Q3 against market expectations for a 1.0% drop. This follows a 2.3% gain the prior month. Export prices jumped 1.9% q/q from a 3.6% rise in Q2. Market expectations were for a 1.0% increase. This suggests that Australia’s terms of trade improved in Q3.

The market continues to price in the prospects for a further RBA rate hike by the end of the year (next RBA meeting 7 November), with even some speculation of a further tightening beyond that starting to develop. Next week’s Australian Q3 inflation data will be key. AUDUSD has broken higher through the 0.7580 resistance and we would now expect further gains to target 0.7690.