Australian Central Bank Shatters Market Hopes, Europe to drop?

Sep 3, 2014, (2:54 AM EDT )

Sometimes Forex markets can provide bigger cues about trend in equity markets. Specially on days of big central banks’ meetings.

Today is one such day when the Australian Reserve Bank’s statement has created trend change in currencies and it might affect equity markets as well.

The Reserve Bank of Australia has kept its benchmark interest rates unchanged. The bank’s Governor, Glenn Stevens said today, that the banks interest rates are already low enough and now, there is no possibility of more rate cuts.

Since last two days, the Aussie dollar had been dropping heavily on speculations about a rate cut by the RBA. Today, after the RBA Governor’s statement, the Dollar index that had been galloping higher like a horse on steroids, fell rapidly and the Australia dollar (AUD) gained. Not only AUD, but Euro also jumped up as markets hopes of an ECB easing dose became dim. The Fed has made it very clear that its QE program is about to end and interest rates are going to rise earlier than planned. The U.K. economic data has also been good this week, giving the Bank of England time to stay away from any more rate cuts. Now, all hopes of liquidity junkies were resting on the ECB , but now, as another big central bank joins ranks with “no interest rate cuts” bandwagon of the Fed, market speculators are pausing in their “rally track.”

Euro zone will receive many important economic reports today. Markets might still jump at negative reports but the earlier confidence of absurd rally is now being replaced with doubts. We might see some profit booking in European markets too as Euro is rallying in forex markets today.

I might be wrong, but the upside seems limited in European markets today. High volatility will be generated by economic reports.

Technical signals:

For DAX, crossing over 9523 and 9533 will be a major intra day challenges as these are immediate resistance level. Above 9533, DAX might trade positive but below 9523, you can expect a negative trading pattern in the index.

For FTSE100, the first intraday challenge will be to cross over 6831 and above that, 6848 will be the next hurdle for the index.

For CAC40, current levels of 4595 will be a resistance and if the index survives this level, then expect a positive trend in this index.

Good luck, have fun and now wait the gang leaders from U.S. markets to arrive and shake world markets 🙂

See you later.

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