Originally published by AxiTrader
The Australian dollar is a little lower this morning reversing the strength it showed in the wake yesterday of the big beat in Australia's building approvals data and the surge that was occurring in Dalian iron ore prices.
That saw the Aussie make a high around 0.7864.
But it is down 40 points from that level this morning at 0.7824 for a loss day on day of 0.2% after iron ore reversed and the US dollar was a little stronger overnight.
That reversal, after such a long and concerted uptrend which drove the Aussie 370 points to the 61.8% retracement level of the 81/75 cent fall, sets up its own move to test support. The garden variety 38.2% retracement sits at 0.7730 and the price action is suggestive such a move looks possible.
But before I get to the chart to outline that it is worth talking both about iron ore and then the NAB business survey today.
Iron ore is Australia's biggest export and throughput at Port Hedland for iron ore has never been higher, according to data released over the past week. That's a good thing for Australia's export earnings. But does it really make sense that prices in China for iron ore seem to rise whenever there is news that China is going to curb steel production driving rebar higher which usually takes iron ore futures with them?
I have to say I get the price correlation but the fundamental one makes no sense to me. Lower steel production suggests less use of the raw material which would put downward pressure on prices, not the upward pressure we often see at times of the announcements as steel drags iron ore higher.
That doesn't mean I would ever stand against the freight train that iron ore futures, and their moves, make on any given day. The market is the market and prices are prices.
But I raise it this morning as iron ore futures prices approach a trend line that stretches back to the record high a few years back.
Can they break and take the Aussie higher? Something to watch in the weeks and months ahead.
Now to the release of the NAB business survey today.
Readers know I see this survey as the most important economic release each month. It helps frame my overall view of the economy because of the breadth and depth of the questions asked. That then feeds into my behavioural calculations on what business AND consumers will do. Last month we saw a bit of a pullback in conditions and confidence which printed +12 and +6 respectively. We’ll see how they print and how the sub0-indexes on trading, profitability, and employment look too.
It will also factor in AUD/USD trading - and the crosses - today.
Equally important will be the release of Chinese PPI and CPI data an hour after the releases of the NAB survey. Traders will look to this Chinese data as a proxy for global price and inflationary pressures. That can either sooth or further jangle the nerves of bond traders who have pushed US and other longer rates substantially higher overnight and in the wake of the BoJ mini-taper yesterday.
To the chart then and I have a signal to sell AUD/USD now. The target is 0.7730.
Have a great day's trading.