Originally published by AxiTrader
The Australian dollar dipped Friday as traders anticipated a tough day in Asia after the weakness in US stocks and metals prices the previous night. But as Shanghai metals markets opened, and dipped less than AUD/USD seemed to have been anticipating.
But the upside pulse in Shanghai metals - as exemplified by copper prices in the chart below - saw the AUD/USD trade back toward 79 cents by Friday afternoon. The Aussie then ebbed and flowed while futures were open and then took a leg higher once more as the US dollar lost ground across the board on Friday night.
And with few local catalysts locally this week the Australian dollar's fortunes are going to be driven from offshore. By the moves in Shanghai metals markets, by sentiment toward the US dollar, by what traders think about the prospects for the US dollar are going forward.
Aussie traders will be watching North Korea. Perhaps not closely given the recent de-escalation of tensions, but certainly, they'll have a weather eye on the peninsula.
That's because annual US – South Korean military exercises start today. Over the years these exercises have often been associated with North Korean missile tests. Already we’ve seen the DPRK up the rhetoric and said the US is causing “uncontrollable phase of a nuclear war” with military drills.
The Aussie's rally could run into a wall if tensions rise again. It never does well if risk goes off.
That makes the performance of US stocks, and the ability of the S&P 500 to hold above 2400, important for the outlook as well. Should the S&P break that level it would be a signal that risk aversion is rising in markets.
Of course we could have smooth sailing.
The Military exercises may not cause any ructions, and stocks may again see buyers step into the market. Which given that it is a fairly quiet week on teh data front means a week of range trading would be the most likely result.
Either way though, there are clear parameters for the AUD/USD when you look at the charts.
0.7960 looks like a tough top for the moment. But a break would signal a run toward 0.8020. On the downside 0.7915 - yes again - looks to be support with a break signalling a move back into the 0.7875/85 region on the 4 hours.
Below that 0.7865/70 looks to be an important support level.
Here's the chart it's a bit messy inside a broad 78-80.50 style range.
Have a great day's trading.