Aussie Dollar and Stocks rally

AUDUSD - supported by stocks

The Aussies fall Friday was reversed with the rally in stocks that eventuated after the constructive talks on Capitol Hill on the Fiscal Cliff. Indeed the rally on stocks was a brutal reversal and an bullish outside day that suggests that there is probably more legs in this rally yet. 

At the very least the reversal gives a tradeable low to set stops against in stocks and also in the Aussie Dollar which made a low of 1.0288 which was a bit shy of the 1.0250 level I thought it might get to at the end of last week. 

The big question of course is whether the stock and thus the AUD rally is just counter trend or whether it has something more in it. My trend indicators are still pointing lower but as you can see in the candle from Friday's trade this was a big reversal but unless or until AUD can regain 1.0380 and then maybe just maybe sometime push through 1.0550 it is in an overall medium term very shallow downtrend. 

But the key thing is that the AUD traded really well last week and the previous week's as earnings season hit stocks hard - it remains well supported by real money and as such looks like it is going to continue to be bid on dips. 

EURAUD - reversal of fortune

Sometimes its good to take most of the lines off your charts and just have a look at the raw price data. When I did this this morning for the EURAUD what emerged is a pair that is clearly in a downtrend but presently consolidating or retracing some of the recent negative price action. 

Interestingly when I look at the flow of data for both Australia and the Eurozone recently as measured by the difference in the Citibank Surprise index for both regions I see that recently the data surprises have stopped flowing in Australia's favour - which might also be providing a little support on a relative fundamental basis.  

Short term the key level to watch is the 200 day moving average which comes in at 1.2405 today and was just above the high of last Thursday and on the 4 hour charts this cross looks biased lower though toward 1.2270/75 perhaps. 

AUDJPY - dragged higher by USDJPY

It would be nice to think crosses always have lives of their own and sometimes they do. But the AUDJPY has recently been constrained by the USDJPY's inability to break higher. This road block was cleared late last week as the dissolution of the Parliament ushers in elections and a possible change of Government and money printing by the BOJ. 

Now whether or not that actually comes to pass is not really the point for me. rather I'm focussed on the fact that the Japanese and the globes investors for that matter are getting the idea that Japan and its economy 20 years into its crisis are slipping further into the abyss and something either needs to be done or is never going to be done. 

Personally I think Japan is getting to the point where it is beyond saving as its companies have lost their Mojo, as its demographics are crippling and as the overall debt burden is simply getting too much. So I remain of the view they will try to depreciate or inflate (same thing) their way out of the mess with a big last shot. 

Accordingly I like USDJPY higher through time and with it AUDJPY. 

Closer at hand though as you can see in the chart above the AUDJPY has finally broken higher and if the stock rally has legs then Yen flows should continue to be supportive of this cross as well only a break back below 82.50 would threaten the outlook. 

AUDNZD - slip sliding away

Longer term I like this one a lot higher as I have written but for the momentn AUDNZD looks like it needs to retrace some of the recent strength. A break of 1.2700 is required for a deeper retracement and while/if this holds AUDNZD will just travel sideways. 


Have a great day
Greg McKenna
Catch me on twitter @gregorymckenna or @FX_Global

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