Originally published by AxiTrader
What a morning.
The Aussie had a wild ride in the aftermath of the more hawkish than expected Fed announcement at 4am this morning trading through a range of roughly 120 points.
Somehow AUD/USD traded up to around 0.8102. That’s just 22 points below the high for the year and suggests traders reacted to something they thought was dovish. The sellers disabused them of that notion very quickly and the AUD/USD collapsed to 0.7985 before it bounced back as the US dollar's rally lost traction. That saw the euro, among others, fought back from their own lows.
For the Aussie dollar specifically, it's worth noting that after stalling around 0.8025/30 - the 38.2% of this morning's fall - the Aussie is now trading at 0.8032, off a post-collapse high around 0.8035/6.
Naturally I don't trade these super short time frames. But 0.8043 and then 0.8057 are the relevant Fibo levels short-term traders will be watching. And I expect them to hold.
What's more interesting to me is what the impact of the Fed's taper, relative hawkishness in terms of expecting another rate rise this year and then 3 more in 2018, is for currency and markets and then what that suggests about the path for the Australian dollar.
As I highlighted in my overnight Market Wrap earlier this morning, it’s pretty clear the Fed’s move caught the attention of forex and bond traders. But it’s also clear it was paradigm questioning, not paradigm shifting. That means for the moment the Australian dollar is likely to remain bid on any dips.
That's certainly the case given the positive global outlook that RBA assistant governor Luci Ellis spoke about yesterday. You can read her speech here but you can see why the Aussie is bid in the key takeaway I picked up in the speech.
"The global economy is looking better than it did a year ago. The turning point was around the end of last year…While it doesn't seem to have picked up further recently, neither is this expansion a flash in the pan" she said adding "there seems a reasonable prospect that – as long as nothing really bad happens – this global expansion could continue for a while."
No wonder the Aussie remains bid. We'll see what governor Lowe says when he speaks today in Perth at 3.10 pm AEST.
But the US dollar is the other side of the cross and what it does is important as I often highlight. So the question is whether the Fed has materially changed the US dollar narrative with its actions this morning.
As I've noted above it's a paradigm challenge for this US dollar bear market, not yet a paradigm shift. To shift perceptions of traders and investors we need to see stronger data from the US or a collapse in data elsewhere.
That, and I'm watching levels in the euro. A move through the current uptrend around 1.1820 would be interesting and suggest the US dollar is recovering. But if EUR/USD falls through 1.1660 it would suggest that recovery has become a rally.
That would weigh on the Aussie and push it back toward support at 0.7850.
Turning to the charts now and the reality is they are getting messy. That range overnight, the high above 81 cents, the big fall and the recovery so far has clouded the outlook.
I guess the broad parameters at support around 0.7940/50 and resistance in the 0.8100/20 region. It really does depend on the US dollar and where euro goes to lead the Aussie right now.
My sense is that's lower in time.
Have a great day's trading.