Australian Dollar Morning Report - Aussie top in, Aussie Yen stops dragged up

AUDUSD - Higher on USD weakness but drifting back with stocks

The AUD has, as we noted yesterday and have noted previously is trading fairly closely with overall sentiment in the stock market and you can see again in the chart below that the Aussie dollar's top was synchronous with the top in the S&P 500. 

Aussie dollar equity correlation

So let's spend some time thinking about the US stock market this morning as way to gauge whether the run to 1.0592 was satisfied with last nights high of 1.0585. 

S&P 500 Index, SPX Index Quote - (SNC) SPX, S&P 500 Index Index Price

As you can see in the screen chart above from MarketWatch the market was up for the first part of the day but slid materially after Ben Bernanke gave his conference.  For me the reality is that the economic weakness that requires rates at 0 until at least 2015, that requires the Fed to buy "initially" $45 billion of Treasuries unsterilised ad infinitum probably suggest to anyone other than the most naive of traders or investors that the US and global economic backdrop remains parlous.

Clearly this is not an environment where companies have pricing power, as we clearly saw in Q3 reports recently this is not an environment where hitting revenue targets is easy and clearly even though the net present value of the cash flows associated with owning stocks has now increased with the discount rate staying at 0% for longer the  market recognises these risks and is still faced with the Fiscal cliff. 

Now of course bull markets tend to climb the stairs where as selloffs swan dive off the roof so the grinding higher price action is not out of context - but is it sustainable? 

Last night's sell off from the highs is worth watching - the S&P needs to push through the 1440 level in the next few days in order to avert a further retracement and take the AUD with it. 

Australian Dollar, Aussie Dollar, AUD, AUDUSD

Looking at the chart above it seems to me that we might have made an interim high at 1.0585 overnight and that the AUD might consilidate back toward the trendline at 1.0520 that it broke up and out through. If it gets through there  its back to 1.0507 and 1.0489. 

EURAUD - stable as both move together

The Euro did better on balance overnight with EURAUD currently sitting 1.2386 at the moment. It is an interesting time for this cross with both the Euro and the Aussie having their particular constraints. Overall even with what I have said above about the Aussie and the change of an interim high it remains in an overall uptrend for the moment where as the Euro needs to break 1.3170 to change from a consolidative market. 

EURAUD, Euro Aussie rate

Looking at the chart above it seems for the moment my thoughts on the move lower are wrong - however a move through the static 200 day moving average would be required to convince me. It comes in today at 1.2413. 

AUDJPY - big break 

Again, AUDJPY shows why you must have a process that takes your mood, your psyche and your subjective thoughts out of your trading. Of course that might sound weird from a bloke who seems to write a subjective daily note each day as you are reading here but underlying my thoughts and comments is a process for analysis and trading that I have been following since I first started trading in 1989 or 1990. 

That is if your process or your signals say do something then you do it. 

Aussie Yen, AUDJPY, Aussie Yen Rally

So it is with AUDJPY that it rallied further again yesterday taking out the 87 level we have been targeting for some time and smashing through what I thought might have been solid trendline resistance at 87.40. My stops have now been dragged up to 86.70. 

AUDNZD - go Kiwi go

In a world of risk the smaller side of the cross and in this case materially smaller, is dominating as the Kiwi gets squeezed higher with more pressure than the AUD. So AUDNZD has continued to grind lower making a low overnight at 1.2501. 

AUDNZD, Aussie Kiwi rate,

Can this pair continue to fall? I think it can but it is, below 1.25, in a longer term accumulation zone for me so I am a buyer rather than a seller. 

Greg McKenna

Catch me on Twitter @gregorymckenna or @FX_Global

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