Originally published by AxiTrader
The Aussie dollar is higher again this morning, up 0.36% to 0.7832.
That rally is largely in line with the fall in the US dollar overnight, the move higher in the euro, and the move lower in USD/CAD. So it's fair to say the past 24 hours trade has been simply a result of the weaker US dollar.
That's largely true, especially when Iook at my short term (based on 10 minute charts) relationship between copper prices and the Aussie dollar. Over the past 24 hours the divergent moves in copper (-0.5% blending Shanghai and US prices) and the Aussie which suggests that the AUD/USD rate should be closer to 0.7760 than 0.7840.
But, as I often write, no major currency or exchange rate is a result of a single factor model. That's where the weakness in the US dollar comes into play and it is also where the other atmospherics of markets right now also support the Aussie.
When I think about the AUD/USD I tend to think about it as a myriad of factors which distill into 5 core groups from which its moves are then based across multiple time frames. These groups are essentially interest rates, global and Australian growth, investor sentiment, the US dollar, and technicals.
As it stands at the moment the Aussie is supported by ebullient investor sentiment about global growth and toward stocks. It's supported by the outlook for global growth and the overall impact that has had on commodity prices recently. And it is even supported by the interest rate spread which has stopped compressing to the US recently and managed to get back into positive territory.
So the US dollar's weakness just adds to an already relatively positive outlook for the Aussie.
But I am watching copper closely for signs that it might be turning. My charts suggest that might be a chance.
You’ll recall last week’s highs took copper to some very important technical levels in taking out both the recent high and also hitting the 50% retracement level of the 2011-2016 selloff. It hasn’t fallen too far yet. But it had a incredible run of consecutive rises so a pause, and or pullback seems entirely reasonable to expected. Especially given this important level it has run into.
So as I say, the Aussie’s outperformance to copper over the past 24 hours is for me a warning on the extent of further appreciation.
Which brings me to the AUD/USD chart.
0.7870/75 is the region where the next big level of resistance lies. That's the 61.8% retracement level of the fall from just above 81 cents to just about 75 cents. A break of that level would suggest a round trip to last years highs.
On the downside the Aussies uptrend line around 0.7780 is the key level to watch.
So short term we have an 80 to 100 point range to watch in the Aussie for the next shoe to drop technically.
Have a great day's trading.