AUDUSD - how high can it go

The only reason I haven't turned outright bullish on the AUD recently was the persistance of the top of the box at 1.0489 and the overhead resistance from the trendline that stretches back to the high in 2011. The first of these levels was breached over night with the AUD running up to a high of 1.0515 even though it has since pulled back into the 1.0470's.

So the topside case is building but is not yet confirmed.

Clearly the Aussie continues to have headwinds - the US dollar's resurgence overnight for example is an obvious one should the recovering US economy and Euro and Yen weakness lead to further US dollar topside impetus. But as questions are starting to be raised about the UK's Triple A rating and as we get figures such as the unemployment yesterday that unexpectedly dropped to 5.2% in Australia so the relative attractiveness of holding Aussie dollars and Australian assets is reinforced.

During the week former RBA Board member Warwick McKibbon was quoted as saying that the AUD will head higher on the back of capital flows and it is hard to argue with this idea on the basis of the current back drop. As I noted in my recent longer term outlook for the AUD it is going to be stronger for longer so unless we get an economic catastrophe either in Australia or somewhere in the world the Aussie is going to remain well bid.

Certainly its a crowded trade by historical standards but then we have seen a paradigm shift in the size of available limits for AUD assets the catalyst for a wholesale sell off is absent at present.

Looking at the chart you can see the mild uptrend the AUD has been in for some weeks now but you can also spy the downtrend line that comes in at the 1.0525/35 level. A break of this would turn the outlook more positive still. Support remains rock solid in the 1.0380/1.04 region

EURAUD - falls off a cliff

As I noted yesterday I am always more comfortable being a seller of Euro then a buyer so even though Euro has some strong support near the current level the sharp rejection of the move up above 1.31 this week will have knocked sentiment materially. Equally Mario Draghi's down grade of growth and the Italian political ructions that are threatening the Monti government aren't going to help.

So as the Euro has sold off sharply so has the EURAUD.

I am going to go out on a limb here and against my trend following systems and say that i think EURAUD is going to retest the recent lows and in time break them.

AUDJPY - new high, shorts stopped

As noted yesterday the tactical short was going to be stopped out if the AUD traded through the recent high and so it was overnight. The release of opinion polls suggesting that the opposition party lead by Abe will get its hands on the levers of Monetary policy and thus seek to drive more stimulus into the Japanese economy and thus also seek to devalue the Yen saw it come under pressure again.

My view remains that the yen is on a multi-quarter trend back toward 99 - so the short was only ever tactical and only a small loss was booked.

Where to now? It's a good question and as much as the AUDJPY is going to be driven by the overall moves in USDJPY should the AUDUSD close above 1.0535 then AUDJPY is biased significantly higher.

AUDNZD - Lower again

The downside focus continues for this pair after the RBNZ statement yesterday. 1.2520 seems a reasonable target.

 Greg McKenna

Catch me on Twitter @gregorymckenna or @FX_Global