AUD/USD – supported by risk asset bounce
Stocks traded lower in Asia yesterday morning giving the S&P 500 a chance to test the important trend line support highlighted yesterday and then in European and US trade we saw a bounce as support held. That's good news for the bulls, not even the bulls really, just the overall shape of the market because I worry when volatility gets very low that any small catalyst can cause an out-sized reaction from traders and investors.
And make no mistake, with stock market volatility back at levels last seen before the GFC, complacency will build. That is the lesson of history but can complacency really build in this fractured global economy? No because we all, traders, investors, strategists, pundits, central bankers and policy makers, know that the headwinds we face are massive. But yes as well because of the way the market and traders trade - low volatility normally leads to bigger bets in some quarters of the market as players trade bigger size in smaller ranges to make, or try to make, an equally large amount of cash.
My sense is it is too early yet in the low volatility environment for that kind of aggressive negative price action and the central bank actions to put free money into the market is certainly aimed at damping downside volatility. But I am on guard and I reckon investors should be too. However, don't get bearish unless that trend line gives way and even then Presidential years normally end well.
Anyway enough of the editorial and onto the AUDUSD.
Yesterday morning’s early weakness gave way to strength as Europe entered the fray and the Chinese CPI of just 1.9% was viewed as giving room for Chinese stimulus. Whether or not that might occur is not the point markets believe it and then the better retail sales data in the US buoyed stocks. Both of these data pointed helped the AUD higher although the stronger retail sales gave succour to the USD taking the edge of AUD a little
Interesting price action yesterday in the AUD with a gap open around 1.0250 before falling back with the EUR during Asia where it found solid support and is now back testing the previous hourly uptrend line. The AUD looks like it might be building upside momentum but the 1.0290 200 day moving average might be solid support again if it can get there.
As you can see on this chart of the Daily price action the AUD is not really going anywhere and only a break of either 1.0150 or 1.03 would lead to a bigger move.
Longer term the dailies are still pointing down but the momentum has washed out of the trend and unless or until the range breaks at 1.0150 the move toward 0.9970 is on hold.
EUR/AUD – Stalling and trendless
My hourly indicators had been working fabulously for a while now on EURUSD but yesterday was one of those days when you give some back. I went short but got stopped a few hours later for a 50 point loss - ouch. Anyway that is the way of it sometimes. Looking at today's there doesn't appear to be any trend worth being a part of for EURUSD.
It is a similar story for the EURAUD which is also stalling and trendless.
We wouldn’t be playing in this one unless EURAUD breaks topside through 1.2680 or downside through 1.2570. The ADX suggests there is a very slight negative bias today in this cross so selling rallies very short term on the day might reward.
AUD/JPY – Range established
We did better on AUDJPY yesterday with the topside bias continuing on to the recent range top where it ran into resistance again as you can see in the hourly chart below.
It seems more likely than not that we might eventually see a range break to the topside and a run to 81.15. But this is a low volatility cross at the moment so no strong trends.
AUD/NZD – building momentum for a break
In the short time the AUDNZD is pretty much dancing on the spot just like the AUDJPY but if we step into the helicopter and have a good look at the set up – fundamentally and technically we get a picture of a cross that is building momentum for a topside move.
As it stands it is only building momentum it is not there yet and the recent high at 1.2570 odd would need to give way to push on. 1.2635 seems achievable soon enough though.
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.
Greg McKenna
