Originally published by AxiTrader
Sitting at 0.7850, the Australian dollar looks under pressure this morning after trading up to a high yesterday of 0.7918.
That high was just a few points above the 38.2% retracement of the sell-off from 0.8043 and the reversal yesterday came after the recent trend of weaker than expected Chinese data continued yesterday.
Once traders saw the misses from retail sales (+10.4 v +10.8 exp), industrial production (+6.4% v 7.2% exp), and fixed asset investment (+8.3% v 8.6% exp) the Aussie dipped back toward 79 cents before sliding lower.
That data contributed to what’s been a very apparent and recent softening in Chinese data flow. Indeed the Citibank Economic Surprise index for China has fallen from above 46 8 days ago to just +22 this morning. Chinese growth still looks relatively healthy – just slower than it has been.
But throw in a fall in iron ore, a surge in the US dollar, and a generalised dip in commodity markets - which saw the TRCRB index fall 1.16% overnight - and we now have the Aussie just 10 or so points above last week's low.
That makes the minutes from the last RBA board meeting - to be released at 11.30am this morning - even more important for the Australian dollar than usual.
Of course, we know that governor Lowe said Friday that the RBA is not looking to intervene anytime soon. But there is every chance the minutes of the RBA's monthly meeting will reflect a discussion on the negative impact of the strong currency on the Australian economy. With positioning mega long and most fundamental valuations suggesting the AUD/USD is fully priced it won't take much for the Aussie to trade down and through last week's lows to 78 cents -
You'll recall last Monday I highlighted that speculative net Australian dollar longs - as reported by the CFTC - hit the highest level since 2013 at 60,713. The data Friday showed that long at a still incredibly elevated 58,010. With positioning mega long and most fundamental valuations suggesting the AUD/USD is fully priced it won't take much for the Aussie to trade down and through last week's lows to 78 cents.
So, with positioning mega long and most fundamental valuations suggesting the AUD/USD is fully priced it won't take much for the Aussie to trade down and through last week's lows to 78 cents. And if that gives way it's 0.7720/40 then 0.7637, maybe lower over the next week.
My system is 25% long at present - having transitioned from exhaustion to trend following - and another test lower looks likely on the charts.
0.7790/0.7800 - the 38.2% Fibo and trend line for this rally - is the key zone of support.
Have a great day's trading.