Originally published by AxiTrader
The Aussie dollar traded up to a high of 0.7394 last night after what was a pretty good days trade across Asia with stocks and metals markets across the region having a solid day with very positive sentiment.
The high was subsequently followed by weakness and a deep plunge - with the kiwi after the RBNZ decision - which took the AUD/USD down to a low of around 0.7330/35.
That the Aussie found support at this level - as it had 24 hours previously suggest there is a tentative buy zone building in that last 30-50 points in front on the trendline support stretching back to the 2015 low.
So as I wrote yesterday morning "prices are looking a little overcooked on the dailies - which is the source of my introductory comment - but my system is yet to generate a buy signal". That introductory comment was that "About the only good thing I can say about the Australian dollar this morning is that it's becoming so universally unloved it might finally be able to bounce".
The question this morning is whether the stabilisation in the 0.7330 region is the precursor to a bigger move up and through 74 cents or just a pause on the way to 0.7280/0.7300 support.
As it stands right now the outlook is tending toward a bigger bounce. But I'm yet to receive an actual signal from my system.
That's the way the prices look. On a fundamental stand point it is worth noting that some of the big bulge bracket investment banks are turning against Australia and the outlook for commodities.
Indeed, Goldman Sachs (NYSE:GS) has questioned its own positive outlook for commodities in the past week.
Certainly, fairvalue estimates have come down with the turnaround in commodity prices rallies recently. That is a weight on the Aussie and its clear further weakness is now expected by many. Likewise, the bond spread is coming under pressure again as the Fed moves toward a June tightening and the start of its balance sheet tapering operations. Boston Fed president Rosengren
Yesterday Kansas city Fed president Esther George highlighted she thought rates should rise and the taper begins soon. Last night Boston Fed president Eric Rosengren went further saying the Fed needs to think about whether it's 3 not 2 more rate hikes this year - as well as the taper.
While new governor Lowe has been fairly quiet recently - occupied with housing no doubt - about the impact of the Fed's tightening cycle on the Australian dollar the bank was previously strident in its view that the Fed tightening cycle would drive the Australian dollar lower.
Many feel US dollar strength has mostly run its course. But as the move in USDJPY shows interest rate differentials and central bank intenitons matter.
So my senes is that many traders will continue to sell rallies in the AUssie dollar when they come.
Have a great day's trading.