Yesterday’s price action is starting stabilize in both equities and currencies but sentiment remains weak and Asian markets are now following the downward moves seen in Europe and the US.  The main cause for concern continues to be the volatility seen in Italy’s debt market as long and short term bond yields rise above 7% for the first time since the inception of the Euro.  Because of this traders should pay special attention to Italian bond auctions, as this is where the next short term market-moving story is likely to begin.

Aside from this, we are seeing a combination of stories that are contributing to the declines as France and Germany have entered discussions assessing the possibility of shrinking the size of the Eurozone to allow only the countries that are most highly integrated in terms of economic and political structure.  Part of the discussions involved exit strategies for countries that want to leave the Eurozone, so although none of these plans are likely to take place any time soon, the fact that the discussions are being had at all is being viewed as discouraging by asset markets.

The Swiss Economy Minister made some currency-relevant headlines after comments that this year’s strength in the Swiss Franc is not an accurate reflection of economic fundamentals and that a more accurate valuation would be closer to the 1.40 region (against the Euro).  These comments are essentially an implicit defense of the Swiss National Bank’s intervention policy and suggests that the current price floor (1.20 against the Euro) will continue to be upheld.  With this in mind, any major dips in the EUR/CHF should be viewed as strong buying opportunities.

In Australia, jobs data for the month of October increased by +10,100, which equates to an unemployment rate of 5.2%.  These numbers were a modest improvement on expectations.  This help stall some of the weakness in the Aussie but broad Dollar strength continued later in the session.

Macro data will come mostly in the form of consumer inflation figures as Germany, Norway and Sweden will all release their monthly CPI report while in the US, the only data release will be the weekly jobless claims figure and this will be followed by the Chinese monthly Trade Balance for October.

Technicals:

The AUD/USD continues its recent declines, falling through the 50% Fib retracement of the latest rally on the daily charts.  We have seen some bounce here, so we do need to see a daily close below this level to confirm the break.  The next Fib level matches nicely with historical resistance turned support, so this is the next downside target, if we get a weak daily close.

The DAX continues to drop after forming a messy head and shoulders pattern and prices have now made a clear break of the neckline, which confirms the patter structure.  Fib support at 5540 is the next level to watch and buying weakness should not be considered until we approach these levels.  Momentum indicators are still negative, so we expect the weakness to continue in the near term.

Related posts:

1. Italian Bond Rally Seen Weighing on Risk Sentiment; S&P Support Seen at the 200 Day EMA
2. G20 Meeting in Cannes to Attract Market Focus; DAX Pressures Support at 5760
3. Euro Lower on Continued Turmoil in Greece and Italy; DAX Focused on 5760 Support
4. Euro Breaks 1.45 as Equity Markets Find Support; Hurricane Irene Downgraded to Tropical Storm
5. US Retail Sales Help Support Markets; USD/JPY Finally Breaks to the Upside
6. Markets Still in Decline as Eurozone Uncertainties Weigh; FTSE Remains Focused on 5320 Lows
7. Risk Sentiment Shows Slow Improvements on Positive Macro Data; Central Banks Continue with Intervention Rhetoric
8. Markets Rise on Positive EU Summit Outcome; Canadian CPI Released Today
9. Weekend Meetings in Washington Do Little to Encourage Optimism; Oil Declines Set to Continue through the 80 Level
10. Markets Gap Lower as Euro Debt Concerns Continue; G7 Meeting Fails to Suggest Joint Intervention