AUD Strengthens Overnight As RBA Unexpectedly Leaves Interest Rates On Hold At 4.25%

• AUD strengthens overnight as RBA unexpectedly leaves interest rates on hold at 4.25%
• JPY weakens slightly after data released showed that BOJ did intervene in November to weaken the currency in what was a highly covert operation
• Greek Prime Minister Lucas Papademos due to meet coalition partners this morning to try and reach agreement on further cuts as Merkel and Sarkozy apply pressure on deadlines.
• European bonds largely unchanged ahead of opening as all eyes return to focus on Greek arena
• Gold trades sideways overnight after recovering off lows yesterday
• EURUSD slips back from earlier highs as European equity markets fall

Good morning. Despite the seemingly worsening news coming out of Europe yesterday, the EURUSD once again failed to take out 1.3023. I honestly thought that would happen at some point yesterday afternoon. However there was talk that a superannuation bank was buying at these levels.

I cannot name the bank but I think it should be of no surprise to you who was the leading suspect here.

The net upshot was that once we broke 1.3080 after the 4pm London fixing time had been and gone, there was a really nasty short squeeze that took the price back to the 1.3140 region before it later drifted lower into the US close.

Now I didn’t pay much attention earlier in the day, but there was a gap on the hourly charts to 1.3140 and technically that was filled yesterday.

We can make of that as we want, but whilst that move may have satisfied some technical criteria it was still not vital and just another example of how difficult it is to stay with any trades out there at the moment.

Today the Greek Prime Minister, Lucas Papademos, is due to meet with his coalition partners to try and reach some kind of agreement as Merkel and Sarkozy apply more pressure.

At this time yesterday I thought there was no chance of any positive news, but here we are 24 hours later, and whilst the situation hasn’t really changed yet, it’s a slightly different mood out there. However the next few moves could be really vital in the history of Greece and the EUR.

Greece’s largest unions are staging yet another 24 hour strike today and any announcement to cut wages by another 20% will not be well received. For whatever its worth; Greece is due to issue up to 625 million EUR in 6 month bills today.

Personally I think the Franco/German demands are simply just not realistic and are simply going to ensure that Greece will never recover.

Why don’t they just default now because this whole situation is just playing to the political demands of those that will not accept that the single currency is a busted model?

Even some EU officials yesterday were talking for need to an internal Greek devaluation inside within the EUR – quite how on earth that is supposed to work beats me.

Whilst I have no sympathy with their overall situation I do see how the hard working honest people feel victimized by what demands the rest of the EU is making on them.

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This whole saga is becoming the most protracted financial tragedy of all time. Perhaps we should have known that the financial death of Greece would be such a drawn out affair; like some overacting luvie determined to steal the last bit of limelight as they overact out their demise.

The AUD moved sharply higher overnight as the RBA left its benchmark on hold at 4.25%. The central bank had been widely expected to reduce interest rates by 0.25% today.

The board in their minutes cited the improving US economy, easier funding situation in Europe and continued price pressure concerns as the main reasons for the decision.

They did say that if required they will not hesitate to move to easier conditions. That move in the AUD also saw EURUSD hit lifetime lows below 1.2150.

The result has been a higher AUD across the board, most notably versus the EUR and the JPY.

The JPY was also a little weaker after data released by the BOJ overnight. Data showing that official Japanese reserves rose $1306 billion in January from $1295 billion in December wasn’t the story; it was news within that data that showed that the BOJ covertly sold over 1 trillion yen in November without announcing it to the market.

That news will certainly attract some attention in due course-more on that another time. Meantime that news is helping the JPY weaken further this morning as USDJPY nudges higher.

Gold has lifted ahead of the European opening after moving higher yesterday from lows around $1714 it’s currently trading back above $1725.

Technically around $1701 looks like the nearest important support level where the uptrend line comes in from the December lows.

Oil is a little higher but overall the current price is not discounting the kind of demand that the equity markets would imply. Something looks out of line there to me. I will continue to watch this and see.

The early market saw the EURUSD lift sharply as Europe opened for business. It has come back again since that early rush to 1.3165.

European equity markets are lower again this morning which has seemingly dented the early enthusiasm for risk as the AUDUSD falls back from earlier highs as well.

Beyond that endless Greek saga Fed chairman Ben Bernanke is up on Capitol hill again today and if he can manage to take a more positive stance on the US economy then that may help the dollar later on.