AUD/USD – MYEFO might wake a few sellers up
Even though the AUD is a winner on the global least ugly contest that is FX markets the headwinds have been building for it recently as the RBA continues to lower rates, as the Australian and Chinese economies slow and as the mining boom evaporates into the ether.
Today the Australian Government will release its mid year economic review. MYEFO as we call it has been dragged forward inexplicably by the Government and I have to admit I find it difficult to understand why that might be except for the cynical notion that with thee mining taxes first payments due today the Government can still estimate the revenue as opposed to publishing the actual numbers which may be weaker than expected.
What I wonder is whether the the release of MYEFO today will wake traders and investors up to the fact that Australia faces all the same issues as the rest of the world that have resulted from the GFC and we just had a better starting point. If a country that has had a mining boom is undertaking the same sorts of spending cuts that we are seeing elsewhere in the world as it tries to print the much heralded "surplus" then where is the real difference. The RBA will be fretting because the Australian dollar's strength is doing a lot of harm to the Australian economy when the history since the float in 1983 has always been that it has acted as a shock absorber. But in the currency world of least ugly the Aussie dollar still stands out.
On Friday we said that the AUD was "biased back toward the trendline support shown on the chart below at 1.0330" and we saw that Friday. Like the EUR above it is often instructive to take all your lines off and start again and its interesting that we have a trendline where the AUD pulled up last week - someone was watching that!
On the 4 hour charts my indicators are suggesting that a push below 1.0315 will see the move accelerate toward 1.0275/80 and if that breaks 1.0200/10.
In a note entirely unrelated market we are watching trendline support for the S&P as a break of 1415/20 opens the way to the 1370’s which is likely to hit the Aussie as well.
EUR/AUD – range bound
The Euro was hit by the weaker equity performance on the 25th anniversary of the 1987 stock market crash which was naturally good for the US dollar and it strengthened across the board. The Euro reversed nicely off double trendline resistance and closed around 60 points below the high of the day as it continues to map out a big old pennant by the looks of things.
EURAUD is more range bound than trending at the moment as both sides of the cross are buffeted by the US dollars basing/improving pattern. It will be interesting this week to see what happens with Equities and thus the USD and how this effects the Euro and the Aussie both directly and through this cross. On the Euro side one thing to note is that Europe remains a fulcrum still and the Spanish elections held over the weekend may have been the reason that Spanish PM Rajoy hadn't yet asked for the bailout most expect will come. We'll see but the election results will also be important in indicating the move toward a Catalonian secession.
EURAUD has been in a daily uptrend since August and this remains intact for now based on the moving averages but even though the shorter time frames are pointing lower it seems that unless or until EURAUD closes below 1.25 we are just range trading.
Shorter term 1.2623 would be needed to point higher.
AUD/JPY – back toward 81.60
The AUDJPY continues to drift lower as the Yen and the AUD are both buffeted by the US dollars strength. Most likely if we get the break lower in the S&P that we highlighted above the AUD will fare worse than the Yen which will likely gain from an equity market fall should it eventuate. So on balance we remain of the view that a further AUDJPY pullback is in the offing.
81.55 as the 38.2% retracement of the recent move seems a likely magnet initially but only if/once 81.77 gives way short term.
AUD/NZD – stalling
Time frames matter and the AUDNZD continues to look like it is building topside momentum on the daily charts as you can see below but the shorter 4 hour time frame suggests that AUDNZD needs to go lower first.
A difficult one short term as the topside momentum is waning and perhaps a 1.2625/75 range is the order of the day.
Longer term we believe that 1.2350/1.2550 is in a strong accumulation zone even though the downtrend remains intact, just, for now. We’d be long on a 3 month time horizon and a happy buyer and holder of AUDNZD.