Originally published by AxiTrader
The Aussie dollar defied the sell off in iron ore, copper, and base metals more broadly rallying last night to a high around 0.8022 as risk appetite surged on the back of more stellar gains in US stocks and traders rotated away from the euro and yen into other pairs.
But since around 6 am this morning it's lost around 40 points and sits back at 0.7986 after the US dollar staged a rearguard action after the Fed's Beige Book was released.
So while I was utterly wrong yesterday in thinking the Aussie looked like it was levitating a little, the rally, pullback, and moves in drivers like commodity markets renew my caution up here near 80 cents.
That's particularly the case given that last night's high was almost a perfect 138.2% projection of the last rally which stalled around 0.7874 (itself the 61.8% retracement of the 81/75 fall). That gives me pause.
But, in the same way that movements in commodity markets and the relative performance of metals and mining shares - to the overall market - are important coincident indicators for the Aussie dollar, so too is risk appetite. In both direction, when investors are either up or down beat, that will impact on sentiment toward and the price action of the AUD/USD.
So the solid performance of stocks in the US has helped the Aussie break 80 cents.
Equally though, the initial lift the Aussie got yesterday was from the very solid result for the Westpac-MI Consumer Sentiment Index. It was a solid result of 105.1.
But for me, the really big news in prospect from a behavioural point of view and a positive for consumption and spending was the fall in the unemployment expectations sub-index to 122.8 from 127.6 in December and 142.7 a year ago. Taken together with the motor vehicle sales data and recent retail sales the picture of an economy entering 2018 in solid shape is almost complete. That has implications for discussions around the RBA and moves on interest rates which in turn has implications for the Aussie dollar. Against the US dollar and other pairs.
Of course, that means today’s employment data is going to be very important in that regard as well.
I see a 9,000 consensus estimate for the release on my Reuters but the range is pretty wide with Westpac seeing the chance of a fall and another forecaster looking for a 40,000 increase.
If I drill down into the short time frames for the AUD/USD the levels I see as important are:
- 0.7961, the low of the 4-hour candlestick immediately before the Aussie's surge above 80 cents
- 0.7963, a tentative (2 touch) trendline on the hourly charts
- 0.7955/57, the 38.2% retracement of the rally from just under 0.7850 to last night's high
- 0.7935/40, the lows since the initial move to test the 0.7975 before consolildation and then brake higher
- 0.8087, 138.2% FIbonacci projection of the recent hourly run to last night's high.
- 0.8102, the 20/09/2017 high
- 0.8044, the 2017 high
Have a great day's trading.