Originally published by AxiTrader
The Australian dollar is sitting at 0.8053 after it ran to a high around 0.8124 Friday. That was the highest level AUD/USD had traded at since an aborted foray above 81 cents on May 14 2015.
It's left the AUD/USD chart with an ugly pin bar reversal which could be a signal for a top - at least for this run - after an equally ugly reversal in metals saw sentiment toward the AUD/USD sour.
I'll get to the technicals for the AUD/USD a little later in this column. But first it's worth looking at the backdrop for the Aussie dollar from a fundamental point of view.
As I have written often recently, the Australian dollar has been well supported by the strength of the domestic and global economies together with the strong rally we've seen in global metals and mining markets.
Equally, the bond spread between Australian and US government debt has also been moving in the Aussie dollar's favour as 10-year treasuries rally back toward 2% and the 2-10 treasury curve collapses to levels not seen since the US presidential election.
That in itself is a double whammy for the Aussie because the bond market rally and curve flattener is emblematic of the US dollar's sharp fall recently. So the Aussie get the support of the bond spread with the US and the weaker dollar.
And it fuelled the rally to 0.8124 on Friday.
But the Aussie ran into some heavy selling along with metals like copper and iron ore – both of which collapsed on Friday night. It has been a very strong run for the Aussie as the fundamentals on the Aussie side of the cross has combined with a weak US dollar to drive it to these lofty levels.
But the question of what's next becomes more problematic if the reversal in metals accelerates. I'm watching the $2.98/3.00 a pound level in copper as an indication.
In the meantime, the pin bar on the daily charts looks awful from a technical perspective. It’s probably too early to call a top just yet given US dollar weakness. But with speculative accounts still very long there is room for a decent pullback toward 80 cents, then 0.7960, within an overall trend higher.
Looking shorter term at the 4-hour charts the AUD/USD has fallen back inside the previous uptrend and has support at 0.8027 which is both the 38.2% retracement level of the rally from the bottom of the channel and the previous peak before this latest rally.
If this level breaks then it's 0.7997/0.8000and below that 0.7965/70.
Over the course of the week, how NAB business survey and unemployment print will be particularly important for the outlook of the domestic economy and so will exert some influence on the Aussie dollar. But more importantly is likely to be the overall move in thee US dollar. And that will be heavily influenced by the US inflation prints this week. PPI is out Wednesday night with CPI Thursday night.
These will be big numbers in the run up to the Fed meeting and then announcement on September 21 at 4am AEST.
Have a great day's trading.
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