Markets experienced a jolt overnight as the Reserve Bank of Australia surprised markets at its latest monetary policy meeting and left interest rates unchanged at 4.25%.  Consensus estimates were calling for a rate cut of 25 basis points, so the surprise in the decision sent regional equities and the Australian Dollar (AUD) rallying higher.  The accompanying policy statement got more attention the usual because of this and most of it focused on the fact that policy levels are appropriate where they are now despite the debt contagion prospects in Europe.

Rate levels in Australia remain close to historical averages so, going forward, analysts will be watching demand in retail sales and in consumer prices to revise forecasts for another round of rate cuts later this year.  The RBA also made comments with respect to China, saying that growth has slowed in the region but had remained at strong levels throughout the second half of 2011.  China is Australia’s biggest buyer of raw materials, so many analysts view this trade relationship as a measure for how manufacturing is progressing in the region as a whole.

In the UK, BRC retail sales were the main release, coming in higher than expectations but still very weak based on historical averages.  Like-for-like retail sales dropped -0.3% on a yearly basis and this was only viewed as encouraging because the estimates were calling for a drop of -0.8%. The December (charged by the Christmas holiday) showed a rise of +2.2%.

There was little in the way of new information out of the Eurozone overnight, as some of the Greek debt talks were postponed and not much has been seen in the way of progress so far this week.  As a result, the Euro has mostly been trading water with no clear trend developing in recent sessions.  German factory orders did come in positively yesterday but this failed to create much in the way of optimism as markets continue to focus on the next agreement between private bondholders and the Greek government.

In the commodity block, the Australian rate decision did help both the Canadian and New Zealand Dollars move higher but this move is being tempered by lower commodity prices (specifically gold and oil) but we did see some positive Canadian macro data as the Ivey PMI survey rose 64.1 (against the 59.7 number markets expected).  This report is getting more attention than it would normally see because global manufacturing trends have been one of the bright spots in recent weeks.

Technical Analysis:

The AUD/USD has managed to push higher in its latest move and we are now seeing an hourly close above significant long term resistance at 1.0750. This is very bullish for the pair, as we have also seen all the major Fibonacci resistance levels removed but at the same time, we are viewing this pair with caution as the pair is heavily oversold in the longer term time frames.  We still look to establish contrarian short positions at current levels but this is a long term trade, and the pair has yet to form a convincing top.

Oil prices are consolidating at current levels after moving below critical support on the daily charts at 97.50.  Oversold short term indicator readings are working off oversold levels, and we expect the downtrend to continue given the fresh downside moving average cross on the 4H charts.  First support comes in at 95.40, a break here will accelerate losses.

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6. RBA Cuts Interest Rates by 25 Basis Points; S&P 500 Drops to 100 Day EMA
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9. Markets React to RBA Minutes and Chinese GDP Data; AUD/USD Fails at Key Technical Area
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