Originally published by AxiTrader
80 cents is the new black it seems when it comes to the Aussie dollar, which is back at that level this morning after an aborted rally to 0.8020 gave way to a fall to support at 0.7960/65 where the dip buyers returned
Explaining the move on what is still solid growth is pretty straight forward. Traders got ahead of themselves yesterday betting the release of Australia's Q2 GDP at 11.30am would be even stronger than the already upgraded forecasts. That was a bit of a naive error and the short term overhang of longs in the market then had to be unwound after the print was a little bit weaker than forecast.
But at 0.8% for the quarter Australian growth - and its composition - was still strong.
So over the course of the next 12 hours, till around midnight last night, the AUD/USD drifted lower before finding support right where it should have at a little 4 hour up trend line that starts back last Friday.
But before I get to the technicals lets talk about the Australian economy, its traveling speed, and the outlook.
What's important in what follows is I am talking as a trader, investor, portfolio manager, and strategist, NOT as an economist. That's important because while many economists are rightly quibbling about per capita growth, nominal growth, wages, and inflation, the above subset I have mentioned are making trading and investment decisions based on the data prints here and how that stacks up against other alternatives in other nations.
This has been my hobby horse for more than two decades when it comes to forex markets. Economic fundamentals are an input into but not the whole metric of what I call investment fundamentals.
The key here is Australian growth is strong.
We don't report annualised data in Australia, we report quarterly and year on year growth. That means we look backwards where as annualised growth reported in the US, Canada and other nations, is a somewhat flawed method of looking forward. (You can see that by simple reference to any of the last 4 prints of Australian GDP.)
But traders and investors are betting on future outcomes. So even if they don't annualise they must extrapolate what this current level of growth means for the economy, for policy settings, and for the exchange rate - both outright and against other countries.
And on that front, the composition of growth, the fact that the September quarter 2016 contraction drops out with the next print and with the drag from mining investment ending the outlook is for growth to head back toward the RBA's forecast of potential in the high 2% to low 3% region.
So traders and investors won't be participating in the hand wringing of many who say the economy is actually weak. They'll see the growth for what it is. Stronger than they thought possible a few month ago and on track for where the RBA says its headed.
Throw in solid global growth, strong metals prices, and a weak US dollar, and is it any wonder the Aussie dollar is sitting up at 80 cents?
To the charts.
Looking at the daily chart first and we see it continues to show clear respect for the current uptrend line in broad terms and on a close basis. The current support level is 0.7945 today as the line moves upwards.
After that it's 0.7900 and the 0.7865/70 region before the 38.2% retracement level of the rally from below 74 cents to the mid-0.80's recently comes in at 78 cents. That's also roughly the recent low.
Topside resistance is the highs of the past two days in the 0.8020/30 region and then 0.8065. A break of the latter level would suggest 0.8333 as a Fibonacci projection over the medium-term.
The chances of an eventual break higher are growing.
Looking at the 4-hour charts gives me a feel for the nearer term levels to watch on a day that important retail sales and trade data for July is released. Forecasts are for a 0.3% lift in retail sales and a trade surplus of $875 million.
Anyway, the levels to watch are clear in this little 4-hour wedge.
Resistance is 0.8013 then yesterday's high at 0.8020/21. Above that it's the previous night's high at 0.8028 and then the top of this little 4 hour channel at 0.8040.
Support comes in at the intersection of the trendline, last night's low, and 38.2% retracement of last 4-hour rally all of which converges in the 0.7962/68 region. Below that it's 0.7949 and then 0.7930.
Have a great day's trading.