AUDUSD - right on resistanceThere is no denying that I got it wrong yesterday - the RBA did not cut rates and in fact didn't really signal a willingness to cut unless they are forced. Now of course how do you argue with a Central bank that has sheparded the Australian economy through the last 20 odd years of economic and market turmoil without a recession. That is one heck of a track record.
But argue I do and I must because the RBA has consistently under-estimated the impact of deleveraging by households on the Australian economy and consistently over-estimated the impact of the second mining boom on inflation and economic activity.
On average the Australian economy is doing brilliantly but who's average? Certainly not the miners earning 6 figure salaries on fly in fly out mines nor the retailers shutting their shops because of lack of trade and a leakage offshore via the strong Aussie dollar and the internet shopping rage it helped spawn.
Think of the Australian economy as you would if your head was in the oven and your feet in the fridge - on balance you're warm but at either end - well, you get the picture.
But from a currency perspective what matters is what is priced in and how the data flows and on that front the market was clearly looking for a cut because the 90 point rally off yesterdays low at 1.0356 was fast and furious.
But equally, as you can see in the chart above the rally came to a screaming halt at, or around, the 61.8% retracement level of the September to October sell off. I have this level at 1.0442 and last nights high of 1.0444 was near enough - AUD sits around 1.0435 as I write.
If this level can be breached then the AUD has some very serious resistance at 1.0555/65 a breach of which would signal a very large move to the topside. Up to the all time highs at least longer term. How this can be achieved when the US dollar is doing better if difficult to fathom but overall the AUD remains well supported and is likely to remain so.
EURAUD - consolidating but still biased lower
I have no idea what drove last nights rally in the EUR, in Oil or in Gold - it all seems very "speculative" to me. Looking at the Eurozone data that came out last night you would have expected to see the break of important range bottom at 1.2800 build on swiftly but instead EUR reversed off its low of 1.2765 fairly smartly.
This combined with the AUD rally stall saw EURAUD climb back from its acute weakness.
Looking at the chart though you can see that my indicators are pointing lower for this pair and I'm forming the view that after a respite we'll see EURAUD head into the 1.20/21 zone.
AUDJPY - breakout
The AUDJPY is breaking out of the range and I have no option but to go with the break even though USDJPY has not yet confirmed with a breach of last week's highs on its own. Small position for me initially incase this is one of those head fakes.
The move has now broken the channel as well as the 61.8% retracememt of this years sell off and while I would like to see another day outside the range to confirm short term that this rally has legs (feels like it might reverse first) longer term I feel AUDJPY is headed toward 86.85.
AUDNZD - finding support
I was talking to a future market wizard yesterday afternoon about the AUDNZD and said I thought it was headed to 1.2800/50ish and straight of the bat he said that this had been the point of control for a couple of years. So I switched from daily to weekly charts and went wow - he's right. 1.2760 is a huge level on the way up.
That is a lesson for all of us trying to make our way in this business of trading and investing - keep your eye on the big picture.
Anyway as you can see in the chart above 1.28 is basically around the middle of where this cross has been oscillating. Tomorrows employment figures in both Australia and New Zealand will be important in determining the near and medium term direction of this cross. Unfortunately I can't help you with forecasts because I stopped punting employment reports 20 years ago - they are just to to volatile. But any move in either countries favour will see that side of the cross dominate.
You can find me on twitter @gregorymckenna or @FX_Global where I am happy to answer any questions about this post or anything else to do with AUD or FX