Aussie Dollar Bears Blindsided
Axi | Aug 17, 2017 12:53
Originally published by AxiTrader
It's no understatement to say that the Australian dollar's rally back from the important juncture of technical support at 78 cents in the past 28 or so hours has been spectacular.
It's no understatement to say that the move to 0.7930 is unexpected either.
But there is a clear explanation as to what drove the Aussie so much higher, - not to mention mining shares across the globe last night. The answer is Chinese traders rotating out of steel - where authorities have clamped down - and into other metals.
Copper in Shanghai finished 2.17% higher, aluminium rose 2.73%, nickel leapt 3.42%, while zinc hit a 10-year high with a nose bleed inducing 5.62% rise in trade yesterday.
That rally dragged iron ore futures along for the ride with a 4% rise and overnight shares of global miners including Vale (NYSE:VALE), Anglo American (LON:AAL), Glencore (LON:GLEN), Rio Tinto (AX:RIO), and BHP Billiton (AX:BHP) rose between 1.93% and 4.22%.
So one might argue the Aussie dollar's roughly 1.3% rally to 0.7926 this morning might actually be an undershoot.
Indeed with the US dollar weak this morning the recent performance of metals and mining shares against the global market versus the Aussie dollar suggests that there might be more topside if the unemployment data today prints strongly.
The market is expecting an increase of 20,000 jobs during July and an unemployment rate of 5.6%. It’s a notoriously volatile data series, so nothing is certain with this print. But traders will be watching closely to see what the Australian employment market is signalling about growth and its potential.
We'll know at 11.30am this morning.
And on that US dollar weakness, it's based both on what seems to have been a belief that the Trump agenda is now dead after he disbanded his two business advisory councils and what has been read as a dovish outlook for the Fed.
In the first instance that seems fair. In the second I won't quibble with the market's read of the Fed minutes. But I will note that the data has improved since the meeting and further improvements in the data - should they come - will positively impact the US dollar and expectations about the Fed.
Sentiment and price action in forex markets is very fluid at the moment
Which brings me to the charts, and the price action. And I have to give myself an uppercut. Yesterday I kept writing "if 78 cents breaks" blah blah blah. But nowhere did I write the McKenna mantra.
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That is, with the Aussie finding support at the intersection of multiple levels with the 78 cent low Tuesday night that I am respecting this level unless or until it breaks.
Based on the dailies I wasn't going to go long. But the one and 4-hour versions of my system suggested a break of 0.7840 would see a rally. I was facing the wrong way and certainly didn't expect the rally in Shanghai to ignite, and thus drag the Aussie higher.
Anyway the break of the downtrend at 0.7880 took me out of the rest of my short AUD/USD posi and I look with fresh eyes on the battler.
There is no trade for me on the dailies. The 4-hours are stretched, outside the Bolly Band, but as yet have no sell signal. The 1 hour charts suggest a break of 0.7915 would see a run toward 0.7890.
We'll see - the jobs data will be the big event.
Here's the 4 hour chart:
Have a great day's trading.
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