Originally published by AxiTrader
Humans love stories.
For thousands of years we've sat around the campfire - initially an actual one, now a proverbial one - to share knowledge and create a narrative around events of the past and of the now.
The behavioural psychologists tell us this want for a story or a narrative is hardwired into the human brain. And despite what the EMH might tell you about traders and investors they are humans too - and love a good story.
But part of thirst for a story is also the need for an explanation. Explanation of what is driving moves in the prices of assets - stocks, commodities, forex, bonds and other markets. Yet sometimes the real story is not about a fundamental catalyst or "reason" for a move in the price of an asset.
Explanation of what is driving moves in the prices of assets - stocks, commodities, forex, bonds and other markets. Yet sometimes the real story is not about a fundamental catalyst or "reason" for a move in the price of an asset.
Often in my experience over almost 30 years price tells its own story.
And that is where we find the narrative for the Australian dollar's collapse of over a cent, around 1.5%, in the past 24 hours.
I'm sure we'll be able to fit a narrative to the big down draught though.
Some might say it's Federal Treasurer Scott Morrison's intervention to scotch any chance of BHP Billiton Ltd (AX:BHP) moving to an exclusive London listing as a reason for selling. Australia is a less certain investment destination the mavens will say.
If that's the case I would refer them to the rally in Turkish sovereign CDS spread in recent weeks even as the president tightens his grip on power in an referendum the EU observers questioned.
But there might be a grain of truth in this. So I'll give that a tiny tick.
Others, possibly more correctly, will cite the move in copper and the associated concerns about Chinese growth and demand which have popped up this week after the weaker than forecast PMI's over the weekend.
Let's give that one a small tick.
Yet others still will say it's all about the Fed and the chance of further rate hikes in the US driving bond spreads. But the hourly charts show the Aussie dollar was already under acute pressure before the Fed announcement at 4am this morning.
That said, AUD/USD did drop 40 points and the lows were after the Fed statement. So I'll give that a tick too.
However the story, the big one, the unifying narrative of the last twenty-four hour's price action is the price action itself.
As I highlighted yesterday the bulls had every chance to take the Aussie higher after the RBA announcement. Yet they could not break the downtrend and failed at the attempt. Then yesterday just 5 points below that trendline resistance the bulls ran into selling again and the rally faltered. And subsequently unravelled as traders focussed on the continuation of the downtrend.
I've given all of the theories above a tick of some magnitude. But I strongly believe they are a narrative that fit the price action and that's why the Australian dollar's fall was so much greater than the drop in the Kiwi, Euro, Yen, pound, or emerging market currencies - all of which came under pressure from a stronger US dollar.
But I strongly believe they are a narrative that fit the price action and that's why the Australian dollar's fall was so much greater than the drop in the kiwi, euro, yen, pound, or emerging market currencies - all of which came under pressure from a stronger US dollar.
Sometimes it's just the price action.
Anyway looking at the charts this morning, the 4-hour looks a little over cooked to the downside and suggests a rally back toward 0.7460/70ish. That's where previous support - now resistance - sat also.
Maybe the trade data for March released today might shot the lights out with a bigger than expected surplus - not a typo. But with traders expecting $3.400 billion surplus that could prove a challenge. We'll know at 11.30am AEST.
Looking at the daily charts though the 0.7385/90 I've mentioned multiple time recently is not an unreasonable target still. It’s both the bottom of the current channel and the 61.8% retracement level of the 2017 rally.
Here's the daily chart;
Have a great day's trading.