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Aussie Contradictions Resolved

Published 18/09/2018, 12:24 pm
Updated 09/07/2023, 08:32 pm

Originally published by guppytraders.com

A few weeks ago we noted the market contradiction between the Australian dollar and the Australian market.. The Australian market was making new 10-year highs but the Australian dollar was making significant lows.

Here was the contradiction– a falling AUD and Australian market making new 10-year highs.

Who is the dominant partner in this relationship? The answer is now in. It’s the Australian dollar. The collapse of the AUD pointed the way for the substantial retreat in the Australian market. As much as Australians like to think that Trump's trade wars have no impact on Australia, the reality is very different. Australia, a close ally of the US, is just so much collateral damage.

The Australian market is not immune from self-inflicted wounds. The criminality in the banking and insurance sectors being revealed by the Hayne Royal Commission is undermining the companies that make up the bulk of the Australian market index.

Traders who were alert for evidence of a pullback in the Australian market went short as the Aussie dollar failed to hold support near $0.74. The AUD is a lead indicator for the Australian market.

The Australian dollar broke the long term uptrend in April and quickly developed a substantial downtrend. It reached 12 month lows at $0.74 and rapidly reached two year lows near $0.715.

A fall below $0.74 has a downside target near $0.715. This target is established using the support area tested in 2016 and 2017. The consolidation near $0.715 is weak. The short term Guppy Multiple Moving Average is well separated suggesting that traders are committed sellers. There is a low probability of a rally rebound towards $0.74. Traders fade the rally for a move towards the next support level near $0.69.

There is a weak relationship between Australian dollar weakness and US dollar strength. The impact on the Australian dollar flows from revelations about a corrupted financial sector and the fallout from Trumps ramping up for tariffs. What hurts China hurts Australia and that’s before tariffs are directed specifically at Australia.

We use the ANTSYSS trade method to extract good returns from the potentially fast fall as the retreat develops.

AUDUSD weekly


Daryl Guppy is a leading international financial technical analysis expert and special consultant to Axicorp. Guppy appears regularly on CNBC Asia and is known as "The Chart Man". Disclaimer: Daryl Guppy is not a financial advisor. These notes are for educational purposes only and provide an example of applied technical analysis.

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