Originally published by AxiTrader
Key Takeaway
The combination of the short term technical outlook and a recovery in base metals and iron ore saw the Australian dollar find its supporters in the past 24 hours.
That saw it run up to a high of 0.7692 which was right on the 4-hour downtrend resistance from the recent highs and the short moving average I use as a directional indicator.
That it failed to push higher suggest that this run is done until we see exactly what the fed is going to do and what it is going to say.
What You Need To Know
Copper is back at $2.62 a pound - up more than 1% over the past 24 hours. Likewise zinc, nickel, and iron ore were also higher as we started this most important of weeks for the Australian dollar and forex markets more broadly.
Indeed while the base metal rally was positive for the Aussie it was the massive spike in iron ore - driven by a simultaneous rally in Chinese steel prices that really improved sentiment toward the AUD/USD over the past 24 hours. Iron ore for May on the Dalian exchange shot 4.86% higher yesterday.
When you combine that with the 4-hour charts which were suggesting a counter trend rally Friday and yesterday (counter to the daily charts I use in my trading) and we got the preconditions for a run at resistance.
That's what we've seen overnight.
But even as the momentum to the downside has stalled a little over the past few days the fact that the resistance levels held suggests the Aussie is still not out of the woods yet.
Part of that resistance is naturally the reality speculative players still appear to be solidly long the AUD/USD. That's at least on teh basis of the latest CFTC report released Friday which showed only a tiny fall in the net long positions of those it refers to as big speculators.
Naturally, the fall into Thursday's low around 0.7490 would likely have cleared some of these positions out (remember we get the data on Friday as at Tuesday). But overall the market is likely still net-long AUD/USD.
But that doesn't mean it can't rally.
Today's massive data dump from China which will release its latest data on retail sales, urban investment, and industrial production is very important as an update on where the Chinese economy is at right now. So by extension it's important for Australia and the Aussie dollar. Not least because it will also impact the sentiment in base metals and iron ore markets which will then feedback into the Aussie dollar.
Also out today is the latest update from the NAB's monthly business survey. This is my favourite economic indicator released every month in Australia because it is broad in scope and detailed in information about the economy.;
Last month's +16 for conditions and +10 for confidence is a hard act to follow. So we'll see if these elevated levels stick or whether there is a pullback. Equally though I'll be looking at the trading, profitability, and employment sub-indexes to see how business is tracking at the moment.
And then we wait for the Fed on Thursday morning.
The meeting kicks off tonight in the US and it's worth noting that US 2's and 10's were a little higher last night. At 2.6258% the 10's are breaking significant resistance. It's not an issue until we see a weekly close above 2.60% but the chances we are seeing this now are rising.
My sense is we'll get a hawkish hike from the Fed. Remember Janet Yellen expressly said that 2017 is not 2015 or 2016. If that is the case and if US bonds continue to rise, driving the spread between them and Australian rates narrower, it is unlikely to be a good thing for the AUD/USD.
Have a great day's trading.