Originally published by AxiTrader
The Australian dollar is opening the week under pressure after Friday's collapse saw it fall around 2 cents from the week's highs.
At 0.7907 it is at it's lowest level since January 15 when the Aussie was surging toward the recent high at 0.0.8135.
But the selling doesn't feel like it is anywhere near exhausted yet.
I say that because as interest rates in the US rise on the back of what's clear to be very strong growth and a re-appreciation of that along with the path of inflation and Fed interest rate hikes - let alone US bonds - as the solid jobs market is starting to drive the very wages rises traders though lacking - but have feared.
Throw in the fact that the US dollar is finding its feet, and that risk has gone off on the back of the weaker stocks performance last week and the preconditions for a serious selloff have coalesced.
As I wrote last week the Aussie was hit by a combination of concerns over the RBA outlook after the lack of inflation evidenced by Q4 CPI last week and the growing cabal of traders, investors, and banks who said the Aussie was overvalued at or above 80 cents. The sentiment shift was distinct enough that we saw the very buyers strike necessary for the rally to end. And then the sellers came for the Aussie.
The question is where to next.
The reality though is this is still in no small part about the US dollar. So it’s recovery is going to be key. And even though the AUD/EUR 35-day correlation dropped from a peak around 0.98 recently to 0.90 at week’s end the euro and US dollar moves are still going to be important.
To that end it is worth noting the US dollar looks to have found its feet. And with sentiment turned against the Aussie the 0.7893 Fibo support of the rally from 75 cents looks to be surely tested with the 50% at 0.7819 and the coincidence of the 200-day moving average and 61.8% retracement of the upmove at 0.7745 now my trading target.
It’s unlikely to be as linear a move as we saw Friday though. Even though the Australian dollar is notorious for climbing the stairs and then falling down the elevator shaft.
Here's the chart:
Have a great day's trading.