Originally published by AxiTrader
2 cents.
That's roughly where the Australian dollar sat this morning below its high of last week. And at 0.7717 this morning the Aussie was sitting precariously close to a potential break back to test to bottom of the current uptrend channel in the 0.7590/7610 region.
But before I get to that weekly chart and where the levels and what they mean are I want to talk briefly about the fundamentals for the Aussie dollar.
Last week I noted I was out of sync with the Aussie when it rallied to that high above 79 cents. Sure I go the fact that the US dollar had been struggling once more. But the fact that investor's risk appetite seemed to be fading, that copper and iron ore were under pressure, and that traders need to pay to be long Aussie all the way along the curve suggested that the Aussie should be struggling - under not out performing - other major currencies.
As readers know I got stopped out of a short Wednesday night but reinstituted it Thursday morning and then I added to it as the Aussie fell. I squared up at 0.7721 on Saturday morning so I come to this outlook this morning with fresh eyes.
But I see a currency still under pressure.
Iron ore futures are still falling as the Dalian contract closed Friday night at its lowest level since mid-November. Since the beginning of the month the benchmark contract has dropped 12%. Throw in the fact that Australia's data pulse has been missing to the downside - the CESIAUD is at -15.4 - and that the AU-US 2's and 10's spread are still trending lower and you can see the problems for the Aussie.
Indeed the fact the Fed is expected to hike rates this week into the 1.5%-1.75% range means that even at the very front of the forward curve traders who want to own the Australian dollar will have to pay for the privilege now that the cash rates have converged.
That's a situation likely to get more expensive as the Fed signal more rate hikes and the RBA - assailed by concerns about households and consumption - leaves its cash rate at 1.5% for 2018 and likely some of 2019.
You really have to be bullish about global growth or really bearish about the outlook for the US dollar if you are willing to buy the Aussie and pay for the privilege. History tells us the Aussie doesn't usually do well under these circumstances.
Which brings me to the weekly chart.
As you can see the Aussie had a bearish engulfing week last week where it printed both a higher high and lower low than the week before.
That's not good.
And it is now resting on whats a minor important support zone - previous highs and lows - here in the 0.7660/0.7710 region. Below that the bottom of the uptrend channel stretching back to late 2015 comes in at 0.7585/90 at the moment.
These are the critical long term levels of support.
Looking at the dailies and it's clear part of the Aussie's collapse was a move back below the 200 day moving average Friday morning. It has now run to the outer edge of the 2 std Bollinger Band so it may be time for a hiatus in the trend. But that trend is clear and the Aussie is pointed downwards unless the US dollar falls out of bed once again.
Rallies back to 0.7757/67 should cap the Aussie.
Have a great day's trading.