Financial Market Research and Analysis

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Euro weakens as Italy rejects reforms
The euro has been the biggest loser against the US dollar in Asia, amid Italy voted to reject the constitutional reforms on Sunday s referendum. Italian Prime Minister Renzi resigned, adding another layer of complexity to rising tensions at the heart of the European Union and the Eurozone.

Although the EURUSD retreated to a 20-month low (1.0506), the fall has not been as aggressive as expected. Austria's decision to push the populist, anti-immigrant presidential candidate Norbert Hofer out of the frame certainly helped balancing the odds in the euro complex. As such, the extension of losses could be limited, with the next critical support seen at 1.0460 (March 2015 low). The selling pressure on the euro is however expected to remain tight into Thursday’s European Central Bank (ECB) meeting. Resistance against the US dollar is eyed at 1.0600/1.0630 area, including the 50, 100 and 200-hour moving averages. More offers are eyed at 1.0692 (minor 23.6 Retracement on Nov 9th to Dec 5th decline) and 1.0700 (optionality).

Cable hit its 100-day moving average for the first time since June 23rd referendum. Stronger trend and momentum indicators hint at a further rise towards 1.3041 (major 38.2% retracement on post-Brexit decline), if surpassed, should signal a mid-term bullish reversal.

The EURGBP broke below its 200-day moving average on the back of a weakened euro. The next critical support is eyed at 0.8225 (major 61.8% retracement on the post-Brexit euro surge), if broken, the pair would have significantly erased the Brexit impact and could aim for a further normalization below the 0.80 handle, which was in play before the UK referendum.

Oil remains well bid, yet the WTI has so far failed to break above the $52.00/52.50 mid-term resistance. Clearing the critical resistance should encourage a further rise towards $53.50/54.00 zone, while a failure to break above the $52.50 could trigger a short-tern downside correction to $50.44 (minor 23.6% retracement on post-OPEC rally), before $49.40 (major 38.2% retrace).

Gold made a short upside attempt to $1188 on the back of the stress triggered by Italy’s referendum. Yet, buyers rapidly lost the hold of the market. Large 1195-put will expire today, which could further dent the formation of a stronger positive momentum on the back of the earlier risk aversion.

The AUDUSD lacks a clear direction before Tuesday’s Reserve Bank of Australia (RBA) meeting. A more hawkish than expected tone could resume the AUDUSD rise and challenge 0.7500/0.7520 (200-day moving average).

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