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After some traders successfully sought out stops on the downside early yesterday, pulling the euro down close to support at 1.28 in the process, the single currency attracted determined bids from systems’ buyers and sovereign wealth funds. Also, some traders were forced to cover shorts, propelling the euro up through 1.29.

Although impressive on the first day of both the new month and final quarter of the calendar year, the euro still has some technical hurdles to clear. Since the Fed’s QE announcement in mid-September, the single currency has been in a clear downtrend, accentuated by lower lows and lower highs. In order to break this downtrend the euro needs to clear Friday’s high at 1.2960 in the first instance.

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For now, the euro remains above the 200d moving average, although it did briefly penetrate it early yesterday. Those who are bearish will want to see the euro break under 1.28 to confirm their predilection. It is a fascinating arm wrestle, with the bulls not yet throwing in the towel despite the fact that the bears have been in the ascendancy for the past two weeks.


RBA gets ahead of the curve. The RBA is to be commended for reducing the cash rate target overnight by another 25bp to 3.25%. RBA Governor Stevens made the observation that, with mining investment set to peak in 2013, it will be important for the economy to have other demand components making a contribution to growth in the future. The Australian central bank is also acutely conscious of the fact that key commodity prices have fallen significantly in recent months. In response, the Aussie has dipped another 0.5% to near 1.03, a one-month low. Technically, the AUD has been in a downtrend since mid-September and has now broken through the 200d moving average. In the near term, expect a test of the 100d moving average at 1.0237.

Cable looks vulnerable. Despite some late month-end buying last week, Cable is looking more vulnerable these days. Since QE3 was announced back in mid-September, a gradual downtrend has been in evidence. Yesterday sterling lost out to the single currency in response to strong buying interest of the latter and some poor UK PMI data, which has in turn also weighed on Cable. In addition some traders bailed out of long positions taken out last week when month-end flows were expected to benefit the pound. Also, GBP/USD has formed a double top, with the recent high of 1.63 matching that achieved back on the final day of April. For now, Cable remains a long way above the major long-term moving averages. However, it is definitely losing momentum, and if October is another month in which risk aversion predominates, then we may just see it correct further in the near term, possibly down to 1.59.

US manufacturing ISM delivers a positive surprise. The latest US ISM manufacturing survey delivered a positive surprise, with an index reading of 51.5 for September, up from 49.6 in the previous month. Especially encouraging were the five point bounce in new orders and the three point pop in employment which augur well for payrolls on Friday. Inventories fell and production increased, while new export orders rose to a 4mth high. The dollar was unaffected by the news.

New month, new ideas. That pseudo-currency, gold, achieved its highest level for the year on Monday, climbing to USD 1,791 an ounce, on a day when risk appetite was actually relatively upbeat (European equities were up by more than 1%). Dovish remarks from Chicago Fed President Evans aided the gold price. Silver prices, which for some are the poor man’s gold surrogate, soared another 3% yesterday; in the past three months, it has climbed by almost one-third.