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AUD Favoured as Hotter CPI Bakes In RBA Action for February

FOREX
  • Currency markets have picked up where they left off early Wednesday, with risk proxies moderately outperforming and EUR/USD holding well above the 1.07 handle.
  • AUD's outperformance follows a modest beat on expectations for November CPI this morning, which edged higher to 7.3% Y/Y and 5.6% on a trimmed mean basis. This keeps a bullish theme intact, with the pair having cleared 0.6893, the Dec 13 high this week to confirm a resumption of the uptrend that started Oct 13. The focus is on 0.6976, a Fibonacci projection. Key support lies at 0.6688, the Jan 3 low.
  • The stronger EUR theme gathered pace somewhat on comments from ECB's Holzmann - a historically hawkish member of the governing council. Holzmann stressed the need for the bank to act cautiously in their approach to quantitative tightening - a comment that helped narrow IT-GE government bond yield spreads and thereby shore up the single currency.
  • JPY and GBP are among the poorest performers so far. Moves have helped reinforce the bullish outlook for EUR/GBP, which eyes 0.8907 next, a Fibonacci retracement point. Note too that moving average studies highlight a bullish backdrop, reinforcing the current trend direction.
  • Markets remain in a holding pattern ahead of Thursday's CPI release, with Wednesday seeing very little in terms of data. As such, more attention will likely be paid to the speaker slate, as ECB's Villeroy, Rehn and de Cos are all on the docket.
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