Originally published by AxiTrader
The Dow Jones Industrial Average is up 2.2% from Friday's close. The S&P 500 has rallied 1.7% while copper is up 1.6% amid a broad recovery in base metals and iron ore. USD/JPY is above 111, EUR/USD is back above 1.09 and euro 1 and 3 month volatility has fallen. At the same time the French/German 10-year bond spread has seen a massive contraction, and gold has dropped $21.
These are all moves that fairly scream risk on. And they are all moves which would usually be associated with a rallying Australian dollar.
Yet at 0.7533 this morning the Aussie is down 35 points from where it was around this time Monday and close to 60 points off the early morning high that day at 0.7591.
It's an utterly awful underperformance which is likely to be confounding the bulls.
But it's also an underperformance which fits with a confusing technical outlook and the underperformance this week by the New Zealand and Canadian dollars, as well as the Mexican peso.
Of course, the Trump administration putting tariffs on Canadian lumber and then attacking its dairy industry hurt the CAD with some potential knock-on effects for the Kiwi which fell close to 1% overnight to 0.6946 and helped drive the AUD/NZD back above 1.08.
So maybe the story here - and why the Aussie is underperforming the big lift in risk appetite - is really just that traders have bigger fish to fry and as I highlighted again Monday the market is very long of Aussie dollars right now.
That means that the release of the Q1 inflation data today might pose an asymmetric risk to the AUD/USD - and on the crosses - if the CPI undershoots market expectations that a 0.6% qoq headline print will drive the year on year rate to 2.2% - back inside the RBA's 2-3% range.
The less volatile trimmed mean is expected to print 0.5% and 1.8%.
This data is important for the outlook for rates and the dollar because it will inform thinking about the RBA and possible policy responses in an economy that feels like it is at risk from a domestic slowing later this year or in 2018.
The data will be released at 11.30am and just as a weak number will hurt the Aussie so too a stronger than expected result will help. Probably just not as much as weak outcome would hurt.
Looking at the technical outlook I think it is neatly summarised in my London Colleague Alex Flood's technical outlook he posted overnight. Alex asked which way will the Aussie go and highlighted that based on his analysis framework there are both bullish and bearish outlooks and that "here is no indication which way the market will break".
I use a different analysis framework but Alex has it right that the Aussie is betwixt and between right now.
The weekly charts suggest lower prices still. The dailies look like they are forming a wedge, and that is confirmed by the 4-hour charts as you can see below.
Short term the key parameters for the AUDUSD are 0.7500/10 and 0.7575/91. There is also next level support at 0.7470 and resistance at 0.7610.
These outer levels would need to break to really get the Aussie moving right now.
Have a great day's trading.