AUDUSD - Breaking up

By the meagre standards of the (new normal?) foreign exchange market, dominated by the suppression of volatility in a world dominated by central bank and related sovereign wealth fund flows - and which conversations with central bankers from both hemispheres in recent days suggest is not going to quickly revert to the old normal - it’s been a more interesting night than for quite a few weeks.

I wish I had of written that but Ray Attrill Co-Head of Currency Strategy at NAB did in his morning report today. He has summed it up pretty well as you can see in our Morning Call from earlier today. 

Looking directly at the Australian dollar I think it is hard to argue that at present where goes the stock market so goes the Aussie Dollar. Of course that makes sense as investor Sentiment is one of our 5 drivers of the Aussie and as you can see in the chart below from VantageFX it is quite strong on even an hourly bar basis. 

Australian Dollar and Equities Correlation

The AUD is the white line and while its not prefect it might be a good trade indicator for the day traders, particularly overnight. If you want access to the EA to do is drop me an email at the Global FX website and I'll let you know how to get it.  

Anyway as you can see on the daily chart below the relationship is pretty strong as well at least directionally. 

Aussie dollar and S&P 500 correlation

 So far the Aussie's outlook seems dominated as we head into the year's end by the moves and the sentiment in the Equity market. We are of course still at risk from the US Fiscal Cliff and whatever noise we can get out of the Italian Election and the impact that will have on sentiment but for the moment the Aussie seems biased to the upside now that the big trendline from  the highs of 2011 has been breached overnight. 

Australian Dollar rally

As I wrote in the Morning Call the bias is now for the AUDUSD to head toward 1.0592/1.0605 and if that gives way then the bias is toward the 1.08's. Speculative positioning at the moment is very long which is technically an impediment but it is only a catalyst for selling if the market pulls back sharply or if the market can't advance any further for a couple of weeks. 

EURAUD - Aussie Dollar is winning the battle for now 

EUR did better overnight as the better data from the ZEW survey's in both Germany and Euro wide seemed to show a rotation from the US leadership of the global recovery with trade data for October showing US exports falling more than 3% for the biggest drop since January 2009. 

But the AUD was buoyed by the better equity performance and is breaking up through the big old downtrend from the 2011 highs as noted above. 

Euro Aussie pullback

As you can see in the candle above the EURAUD was initially stronger yesterday but turned as the Aussie did better overnight and again this morning. It seems to me that the fundamentals support the AUD side of the cross better than the Euro side but unless or until the recent low at 1.2280 gives way my thoughts that the EURAUD is headed back into the 1.21's is on hold. 

AUDJPY - this is why you have a process

I have been uncomfortable with AUDJPY the whole time it has been up here but as I noted yesterday there was "no reason to sell yet".  That is why traders need a solid process that they follow - one that can allow them to override their feelings and stick with a position even when it feels uncomfortable.

And so it came to pass that AUDJPY made a new high for this run at 86.87 as it closes in on the big trendline resistance and the inital 87 level we have been targeting for some time now. 

Ausssie Yen rally

The weekly chart above certainly has a long tail on it which is always a warning sign but we are only in the first part of the trading week so far. But you can see the down trend line that comes into the frame at 87.40 and which is likely to pose solid resistance. 

On the dailies only a break below 85.90 would turn the picture negative short term. 

AUDNZD - Allblacks still beating the Wallabies

The NZD is the smaller currency of the two and it takes less buying or selling to move it relative to other currencies and in this case the AUD. So as sentiment improves in markets, as equities rise and as a bit of risk appetite rears its head toward year end so the NZD is beating the AUD at this point in time. 

Aussie Kiwi Rate

The NZD currently sits at .8390 and has solid resistance at .8493 above - but it looks biased there for the moment.

Greg McKenna

Catch me on Twitter @gregorymckenna or @FX_Global