Originally published by AxiTrader
Sentiment giveth. And sentiment taketh away.
That's the story for the Australian dollar, which was riding high on the back of yesterday's superb print of the NAB Business Survey and a little bit of US dollar weakness.
But just as the rally in stocks and general improvement in risk appetite helped the Aussie dollar ignore weakness in Chinese bulk commodities and bonds spreads over recent days so has the overnight rise in risk aversion knocked it back from its highs.
At 0.7860 this morning it has hardly fallen out of bed. For that to happen the charts suggest 0.7840 would need to break first.
Indeed last night's on the money 0.2% increase in the US February CPI would - without the sacking of Rex Tillerson, Russian bellicoseness, and the threat of Chinese tariffs - have been exactly the kind of porridge Goldilocks really likes. Stocks would have, in the previous day's environment, fairly roared on that outcome.
But sentiment is fragile and uncertainty is rising.
So even though the US dollar lost ground against the yen, euro, pound, and even kiwi the reality is that with the Volatility Index up a little to 16.35, with Chinese, European, and US stocks all lower, with gold higher, and bonds catching a bid risk aversion has risen and knocked the Aussie lower.
How low it goes depends in no small measure on whether or not this is another one day wonder for stocks and risk appetite. A shallow bout of this market malaise would see the Australian dollar retain its support, 0.7840 hold, and the obvious ailments of the US dollar again push AUD/USD back to and possibly through 79 cents.
Should the market funk become more pernicious or accelerate materially then the Aussie dollar will likely come under heavy selling pressure.
If I had to probability weight it on a one-week time frame I'd probably stump for 60:40 in favour of risk aversion and a lower Aussie dollar.
Looking at the charts of the AUD/USD and there is not a lot of direction on the dailies other than to say that yesterday's candlestick looks like a short-term high. We had a a run higher after the open but we've ended up with AUD/USD finishing lower on the day and in the bottom third of the candle.
A victory for the bears.
As I highlighted in Markets Morning earlier and above the 0.7840 region which is the 20 day moving average and thus middle of the Bollinger Bands, along with 0.7834/5 which is the bottom of the 4-hour channel I've brought into the daily timeframe look the key supports to me.
Topside it is 0.7895/0.7905, 0.7925, then 0.7882.
Have a great day's trading.