AUD/USD – hits resistance at the 200d moving average
The Australian dollar was strong after yesterday's employment data. The increase in full time employment was solid and the net gain after part time falls were deducted wasn't too bad either and FX dealers focused on this and took the Aussie sharply higher. The increase in the unemployment rate to 5.4% was largely ignored and the AUD rallied and then broke the 1.0260/70 zone we identified as potential resistance.
I tweeted on my @Macro_Forex trading stream after the employment data that I thought AUD could head toward a retest of the down trend line. But the 200 day moving average offered solid resistance overnight at 1.0297 (high of 1.02925). I can't see it getting back up to or through this level now on the day and a break of 1.0250 would open the way lower toward 1.0225/30 with further support at 1.0205.
Longer term the dailies are still pointing down but unless or until the range breaks at 1.0150 the move toward 0.9970 is on hold.
EUR/AUD – What a bounce
The EUR was up sharply rising from a low yesterday around 1.2824 to a high overnight at 1.2950 - truly remarkable - and it now sits at 1.2926. Clearly this is all about Spain and the ECB bazooka but gee whiz it makes no sense if you look at it rationally. But hey who said that markets were rational :).
Gee whiz we live in an upside down world when a downgrade for Spain is good news and I reckon that the article in the Financial Times by Mohamed El-Erian yesterday/overnight titled "Beware the central bank put bubble" is right on the money. The central banks are certainly doing a great job of holding up asset prices but as El-Erian says:
“Essentially, the Fed is inserting a sizeable policy wedge between market values and underlying fundamentals. And investors in virtually every market segment – including bonds, commodities, equities, foreign exchange and volatility – have benefited handsomely. In the process, many asset prices have been taken close to what would normally be regarded as bubble territory, with some already there.”
Amen to that. Whether it is the Fed goosing stocks or a Spanish downgrade increasing the chances that Spain will need a bailout it clearly doesn't want because it is not comfortable to lose control of running its economy, the markets are acting as if central banks are the right hand of God. And so bad news is good news - at least for today!
Consequently of course with the EUR surging higher and the AUD stalling the EURAUD also spiked sharply higher. Yesterday we said we thought there would be a consolidation in this pair in the next couple of days but we didn’t expect the EURAUD to get down to 1.2504 as it did yesterday. Equally a break of 1.2550/60 was expected to open a sharply lower move – but we remain committed that this pair cannot sustainably head lower unless or until the EURUSD breaks 1.28 which it again rejected last night with a low of 1.2824.
AUD/JPY – Intervention might give trading opportunity
The Japanese are getting antsy again about the Yen's ridiculous strength. Ridiculous insofar as with the Japanese economy mired in economic stagnation the Yen should be weaker than close to multi-decade highs against the US dollar. Overnight Seiji Maehara who is the Japanese Economy Minister was quoted in the Wall Street Journal as saying that Japan may intervene in the USDJPY market even without the consent of the US:
“If we judge that the yen has become excessively strong, even if we have held prior talks, it’s true that Japan may intervene on its own…”
“The currency issue reflects national interests...It’s not something to negotiate about.”
Mmmm, note the deterioration in the US trade deficit overnight and you'll get a sense of the stakes in this currency war - what fun. This will be a great AUDJPY selling opportunity if they do intervene in USDJPY and it drives the Yen lower and AUDJPY higher short term because unilateral dollar Yen intervention usually works short term but then fades fairly quickly. Probably safer as a trade though given the proximity of AUDJPY to the bottom of the range to trade USDJPY outright on intervention unless AUDJPY ends up above 83.
Looking specifically at the AUDJPY in the past 24 hours we can see that it broke through the 1 month downtrend over the past day and which is the second step in a change in the outlook. First we saw strong support at the range bottom again recently, now we have seen the trendline break and we are now waiting on a turn in the ADX and or the JimmyR to confirm a move back toward 82.00/15.
On the day support 80.28 and 80.18 before strong support at the old trendline at 79.98/02. Resistance 80.76 and if this gives way the 81.15 would be the Fibonacci projection.
AUD/NZD – consolidative today
Yesterday we said we thought a move to “1.2570 may be in the offing” and the high of 1.25685 was close enough. Today looks like a more consolidative day looking at the hourly charts and a drop back through 1.2540 opens a move toward 1.25.
Longer term we believe this is in a strong accumulation zone even though the downtrend remains intact for now. We’d be long on a 3 month time horizon and a happy buyer and holder of AUDNZD anywhere near 1.2350 and while this level holds.