Originally published by AxiTrader
I highlighted the 4-hour trendline on Friday that had been constraining the Australian dollar at the back end of the week.
And the battler continued to respect that trendline until the few hours of trade when the rally in US 10-year bonds helped ignite a coincident rally in US stocks. This in turn saw a rally in the Aussie dollar as risk appetite lifted.
So the Aussie sat this morning around 0.7833 off a low of 0.7804 on Friday evening before the rally in stocks saw the buyers return.
That's a positive - as I always say, right risk appetite is a key driver of the Australian dollar. That's true both of the upside and downside.
So if US bonds are rallying a little and US stocks are rising, as a result, the Aussie gets a double benefit of both the improved risk appetite and - perhaps - a compression in the spread between US dollar and Australian bonds in the Aussie dollar's favour.
But what's key here, again, is that the Aussie dollar remains well supported above the recent low at 0.7758 and may even retain that support if the euro starts to fall toward 1.22 as the US dollar rallies. That's because the euro fall could be part of the bond, stock, US dollar rally the first two legs of which should be Aussie dollar supportive.
Of course US data at the end of the week is going to be important - we see the release of Q4 GDP, PCE, and non-farm payrolls on Thursday and Friday. We also get CapEx in Australia.
Till then though the charts suggest 0.7847/58 as resistance and then 0.7902 is the 38.2% retracement of the recent selloff.
Have a great day's trading.