Originally published by AxiTrader
Investors poured back into the US stock market last night as news broke that China and the US were actually talking and that the Chinese seemed to be doing their best to avoid a trade war.
That lift in sentiment helped the Aussie dollar find its feet. Throw in a weaker US dollar and we have a recipe for a nice bounce back to 0.7750ish this morning and all eyes will be on a retest into what looks like interesting resistance in the 0.7776/84 region.
There are still warnings and vulnerabilities for the Aussie and certainly, we shouldn‘t make too much of any one or two day’s moves. When you write a daily each morning one tends to appear to extrapolate to infinity what is really just short-term noise – volatility is volatility after all. Both up and down.
And for me, the fall in copper, continuing pressure on iron ore, and interest rate differentials are still handbrakes on the Aussie.
But, for the moment, the rally in stocks when combined with the weaker US dollar has been a salve for the bulls. What was an ugly close Friday night has morphed into a solid up day Monday. It’s still very noisy and a break of last week’s high of 0.7784 would be a clear signal the Aussie has regained its footing. A fall below last week’s low of 0.7671 would be necessary for the bears to get the upper hand once more.
Here's the chart:
In a broader context is worth reiterating what I wrote in Market's Morning earlier:
On forex markets, Pavlov’s US Bears continue to salivate at all news. Stocks are down, sell the dollar, the US is at the heart of the trade war, sell the dollar, stocks are up, sell the dollar, China and the US are actually talking, sell the dollar, Europe’s data pulse has faded, sell the dollar, Halley’s comet will return in July 2061, sell the dollar.
Okay, I’ve over-egged it a little with the comet. But it seems that everything is a sell the dollar excuse at the moment. Which is exciting because this is just the sort of pessimistic crescendo in which powerful rallies are born. Not yet maybe, but soon.
Have a great day's trading.