Forex: The Aussie marches lower as tumbling Iron ore prices dominate headlines

FXstreet.com (Barcelona) - Another slow session in Asia-Pacific for EURUSD as usual lately, quoting last 9 pips above starting price at 1.2539 with lows at 1.2522, while the focus has been more on Aussie, falling to fresh 1-month lows at 1.0317, near the 200 day SMA, on bad construction and mining related data, thus making EURAUD rise to fresh near 2-month highs. EURAUD is so far capped below key Fibo at 1.2150.

"The main focus has been the crumbling iron ore price," says Peter Whitley at IFR Markets. "The fall through $120 in Iron ore was greeted with it can't go much further whilst this weeks slide through $100 has everyone across the globe sitting up and taking notice," the analyst adds.

"Iron ore accounts for 20% of Aussie exports," says James Glynn from DowJones/WSJ, adding: "Mining now accounts for 50% of growth in the Australian economy, 70% of exports and has created 75% of the jobs," noticing the importance of iron ore and the mining sector in today's Australian economy.

Equity indexes are in the red below -1% all over around the region on global slow down fears, Hang-Seng near monthly lows, Shanghai at multi-year lows, and US SP500 futures below yesterday's lows barely above the 1400 points. European futures point to a lower open, while oil and crude oil are mostly flat still below weekly opening prices.

London session ahead will be a busier one than the days before, with main focus on Italian 10 year sovereign bond auction, with previous auction's yield at 5.96%. Apart from that EU's Barroso speaks at European Forum Alpach in Viena at 09:00 GMT which could bring some headlines. In the EUR data related front Spain delivers CPI at 07:00 GMT, followed 55 minutes later by German unemployment rate, and Italian hourly wages 5 minutes after. Then at the same time Barroso speaks EU and Italy consumer sentiment data will be out. The Jackson Hole symposium finally starts today as well.

In the past US session, the most notable event was the publication of the assessment of current economic conditions included in the latest Beige Book, which according to Nomura strategists, "does not alter expectation for the Chairman's remarks at Friday's Jackson Hole Summit, nor does it alter our judgment that the FOMC will eventually embark on QE3 in response to persistently high unemployment and greater downside risks in H2 2012" the bank said.

Nomura adds: "The Beige Book suggests the anemic pace of growth in the economy continued into the third quarter, an assessment that does not seem to qualify as the sort of 'substantial and sustainable strengthening' needed to dissuade many FOMC members that 'additional monetary accommodation' would be needed."

Back to the EURUSD, immediate resistance to the upside shows at recent session highs and 0.38 retrace of latest intra-week down leg 1.2577/1.2517 at 1.2540, followed by Friday's highs and 0.23 retrace of same down leg at 1.2563, and the latest mid-term near 2-month highs at 1.2580/90 where Sean Lee from FXWW reports big size sell orders above it. For the downside, closest support comes at yesterday's lows 1.2520, followed by Aug 21 highs/Friday's lows at 1.2485, and Tuesday's lows at 1.2464.

AUDUSD instead looks south at the moment with immediate support at fresh 1-month/session lows at 1.0317 where the 200 daily SMA passes by, followed by July 11 highs and key fibo level 1.0290, and June 20 highs at 1.0225. For the upside, closest resistance shows at Wednesday's lows 1.0344, followed by Monday lows at 1.0360, and Tuesday's highs at 1.0390.

According to Westpac currency strategist Sean Callow, "alarming iron ore price action is undermining confidence in AUD, given iron ore accounted for 20.5% of Australia's exports in 2011, well ahead of the second largest export, coal, on 14.9%." Assuming Bernanke doesn't pre-announce QE3 on Friday, Sean expects "AUDUSD more fairly valued around 1.00-1.01." On the day, Mr. Callow sees high odds the pair is heading to test the 200dma support at 1.0312.