Originally published by AxiTrader
The Aussie dollar is back at 0.7954 this morning after making a low of 0.7907 Friday and then running back to around 0.7985. So it's roughly mid-range of the past trading day but squarely in the bottom half of the September trading range which saw it make a high around 0.8124.
On balance, though the Aussie has done quite well all things considered given that iron ore is now down 20% from its recent peak just a little over a month ago.
Iron Ore (orange), AUDUSD (blue), and Copper (pink)
Certainly, it has shown a directional correlation with the fall in iron ore and copper prices. But the magnitude of the fall has been nowhere near as big with the Aussie just 2.15% off the 0.8124 high on September 9.
What's doubly remarkable about the Aussie performance is that as iron ore and copper dropped last week CFTC data released Friday - as my colleague Milan Cutkovic highlights in his piece - shows that the speculative community actually increased their net Aussie dollar long in the week to last Tuesday.
At 72,512 net speculative longs are at the highest level since April 2013.
That long was before the Aussie was hammered and suffered a big fall after RBA governor Lowe's speech Thursday afternoon. So there is some chance that long has reduced.
But even if the long has reduced it's still likely to be elevated by recent standards which reflects not only an upgraded view of the outlook for the Australian economy but also the global economy. And of course, the US dollar is still struggling for traction pretty much across the major currency forex board.
The question of what's next is an interesting one though. It's tied to the continuation, or not, of the fall in iron ore, steel, and copper prices. But it is also tied to how the German election over the weekend and the collapse of the vote for the two main parties impacts sentiment toward the euro. That, in turn, will impact sentiment for the US dollar which then flows through to the Aussie dollar.
Chancellor Merkel will retain her job. But she must look for new coalition partners now the SPD is going into opposition. She'll cobble together this coalition but what these other parties extract from her in exchange for their support, or how the rise of the far-right AfD party means for German - and European - politics is uncertain. That may weigh on euro and thus give the US dollar a bid.
That would hurt the Aussie. It's conjecture I know, so we'll see.
So to the charts. And I think this daily chart today sets out the issues for the Aussie dollar neatly. It's my 4-hour chart which I've changed to a daily to show that the 4-hourly trend which the AUD/USD broke through last week has been offering resistance on the rally.
Resistance today is 0.7965/70 then 0.7985/90. Solid resistance is at 0.8020/25. Support is 0.7930 and 0.7900/10. Then 0.7870, 50, and 0.7900/10.
Have a great day's trading.