Australian Dollar Failed Overnight - But The Rally May Not Have Ended
Axi | Mar 21, 2017 11:32
Originally published by AxiTrader h2 Key Takeaway/h2
The Australian dollar traded to an overnight high of 0.7447. That's the highest level it has traded at since last November and it was a level that briefly took the AUD/USD up above the current trendline resistance stretching back to the April 2016 high.
That's the highest level it has traded at since last November and it was a level that briefly took the AUD/USD up above the current trendline resistance stretching back to the April 2016 high.
Technically the reversal, like the one in euro and the British pound, is a sign that the Aussie is not yet ready to break an hold above that level, that trendline resistance is being respected. That puts a downside bias into the Aussie today.
But with the US dollar continuing to lose ground against emerging market and other currencies the Aussie's rally may not be done yet.
h2 What You Need To Know/h2Yesterday I wondered if it was time for the Aussie to break and hold above 77 cents. The price action of the past 24 hours suggests I wasn't the only one who recognised that was a real chance over the weekend.
But what's seemingly different about this current run higher is that after almost a year of 77 cents proving to be a graveyard for the bulls, and with closes above that level being fairly rare across that time frame the AUD/USD closed New York trade above 77 cents for the second time in 4 days.
That in itself suggests that support, and buying power, is coming up to market in this environment where traders and investors are clearly recalibrating their US dollar views.
Because the reality is that this Aussie move is a combination of continued buying on dips and a recalibration of US dollar expectations in the wake of what was a dovish read by traders of the FOMC's statement, intentions, and Janet Yellen's press conference.
Indeed it was a read which was reinforced by Chicago Fed president Charles Evans who sent two messages overnight. First, that he thinks another two hikes are about right for 2017 and second that Trumponomics stimulus could add to that.
Evans told the Fox network “as I gain more confidence in the outlook I could support three total this year. If inflation began to pick up, that would certainly solidify (that expectation). It could be three, it could be two, it could be four if things really pick up”.
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Which is exactly why the US dollar didn't rally hard last week. There was no surprise. But also exactly why there is not wholesale liquidation of the US dollar either - traders still think Trump stimulus is in the pipe.
That means tonight's speech by NYFed president Bill Dudley and chair Yellen Thursday will be important for the USdollar, forex markets, and the Aussie dollar's rally.
On the day though the release of the RBA's minutes are going to be important.
My take after the governor's statement two week's ago was that it could easily have accompanied an easing in policy, or at least one that signals that the door is ajar to further easing.
What's stopping him, and his colleagues at the RBA, is the boom in property prices and investment lending. So it will be interesting to see what the minutes reflect on this and whether the door could get pushed ajar once more.
That would undermine the AUD/USD's rally.
But for the moment the bulls have it. Short term support is around 0.7704/09 with resistance at 0.7747 high on the day.
Bigger picture 0.7780 is still a good chance and likely solid resistance unless the US dollar falls out of bed.
Have a great day's trading.
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