Originally published by AxiTrader
THE AUSTRALIAN DOLLAR
The big mover Friday was the US dollar,which knocked the euro back below 1.16 (Italy was put on negative outlook by ratings agency Fitch) and pole-axed the Aussie dollar back below 72 cents for its lowest weekly close since mid-December 2016. The Aussie is at 0.7189 this morning.
The AUD/USD has put in a poor show on the monthly charts even though it is sitting right on support from the September 11 low. It’s only a two touch line so it’s tentative and my sense is the long held target of 0.7125 will give way to an eventual test to 0.6825/50. It’s not a big ask when you are looking at it on a monthly basis – which I’ve done for context. Short term there will be machinations but that seems where the Aussie is headed. And it’s worth noting we had a daily break on the 20 and 55 day ranges for the trend followers Friday.
What’s driving that of course is a combination of the usual suspects. US dollar strength, domestic economic weakness – or, in fact, rather fear of same – worries about global growth, the US dollar, the relative performance of metals and mining shares, and interest rate differentials, among other things. Indeed you can see in the AUD/USD 2-year and 10-year spread a big part of why the AUD/USD is out of favour with the set of buyers who often have bought Aussie in the past for a pickup to index. Buying AUD/USD now makes no sense given rates in the US and that helps fuel the US dollar and the Aussie’s demise.
Today of course the pressure is likely to be on. At least until retail sales, which are going to be of uber import to traders of the Aussie today. A good number could give it respite. But something weaker than the 0.3% expected will see the Aussie cascade lower. So the levels I’m watching today are Friday’s lows around 0.7174, which was a handful of points below the 138.2% projection level from the break of the recent range bottom on the 4 hour charts at 0.7237. A break opens 0.7125, resistance is 0.7230/40.
ASX INDEXES
Weakness in China and month end was in part is why the ASX 200 was off 32 points Friday. SPI traders found 26 points of gains Friday night somehow and somewhere – we’ll see.
That 32 points, or half a percent, loss to close at 6,319 Friday as investors rejected the 10 year highs wasn’t a big fall by any stretch and SPI traders have found another 26 points of gains Friday. Where exactly they came from – other than the usual knee jerk AUD/USD is lower – I’m not exactly sure because as the moves in Chinese and European stocks markets show there is still plenty of concerns around the globe for non-US stocks markets.
Overall though when you look at the Monthly, Daily, and Weekly charts you see that the uptrend for both the ASX and SPI200 are intact. Short term the dailies look a bit toppy to me with 6,360 the upper end of the daily channel as you can see here on the SPI. I’d rather be a seller than buyer short term.
A LITTLE ON THE ECONOMY
We’ll, know how strong Q2 GDP was on Wednesday and we’ll know how retail sales for the start of the 3rd quarter were at 11.30am this morning. Both are important pointers to the outlook and both are important for the outlook for the RBA. Of course no one really expects the RBA to cut rates. But that’s part of the issue if we do see weakness – the RBA seems unwilling to respond holding a rather more optimistic view of the outlook for the economy than that which is starting to emerge.
Of course the data may be strong and the RBA could indeed be correct. In many ways it feels too early for weakness. House prices are only really slipping in a consistent way recently and jobs are still plentiful it seems. As I wrote last week the next couple of months retail sales, NAB business survey, and Westpac consumer sentiment are key.
But as demand for debt falls to new lows I am worried that the domestic economy will head the same way.
DATA:
On the day today there will be some disruption as the US and Canada are out. But we still have plenty of data to get through. Here in Australia we get retail sales for July as well as more partials for Wednesday’s Q2 GDP release with business inventories and company profits out. It’s also Markit Manufacturing PMI day across the globe and that means we’ll also get the Caixin manufacturing PMI in China.
Have a great day's trading.