Quick Recap
The Australian dollar is in the midst of a battle between the bulls and the bears with sellers remaining committed above 0.7730 and buyers lurking in the mid to low 75 cent region.
How this battle plays out in many respects depends in many ways if the US dollar continues to find support and whether the broader market starts to agree with forex traders that there is a real risk of a Fed tightening in 2016.
What You Need To Know
The AUD/USD has been strong for a number of weeks recently making a high of 0.7756 on August 8th. But it hasn't been able to kick on with it as the sellers continued to lurk above 77 cents. This morning, after the US found support in comments from Fed officials last week, and fed vice-chair Stanley Fischer over the weekend, the Aussie is sitting at 0.7611.
In a speech in Aspen Sunday Fisher said "we are close to our targets...Looking ahead, I expect GDP growth to pick up in coming quarters, as investment recovers from a surprisingly weak patch and the drag from past dollar appreciation diminishes."
Coming less than a week before Janet Yellen speaks at Jackson Hole you'd be forgiven for thinking there is no way he would contradict what she is going to say about the state of the US economy. Certainly it can happen.
But rather than thinking forward to Yellen, if we going backwards in time to speeches last week by John Williams from SanFrancisco, Bill Dudley from New York, and Dennis Lockhart from Atlanta we see that while Fischer didn't say anything specifically about rates his comments are entirely consistent with the trio's theme that rates are likely to rise again in 2016.
Even James Bullard, from the St Louis Fed, seems to recognise that rates will rise again. he just thinks the Fed will be one and one for a few years.
So there is a material recalibration risk from markets about the Fed's intentions and the outlook for interest rates. That's the case both this week, before Janet Yellen, and then in the following week's leading up to the next FOMC meeting in September.
That risk for the Aussie is that with the speculative market continuing to build longs, IMM futures showed an increase of 9400 contracts to 41,000, and having failed multiple times above 77 cents recently the buyers step back a little and the Aussie continues to drift.
That's a risk the charts accord with.
The daily charts show the Aussie breaking down through support and back below the top of the previous wedge formation. I'm looking for a test toward 0.7550 and then 0.7500 over the course of this week.
The 4 hour charts say 0.7582/87 is the next short term Fibonacci and 200 moving average support zone. Under that support is 0.7548 and 0.7500. Support in the 82/87 zone is expected to hold - initially on this short time frame.
Have a great day's trading
Greg McKenna
Chief Market Strategist AxiTrader
www.gregmckenna.com.au
Please note: I usually look at 2 or 3 charts each day. These will not always be the same charts and the above is meant to help guide traders thought processes not offer advice.
The information provided here has been produced by third parties and does not reflect the opinion of AxiTrader. AxiTrader has reproduced the information without alteration or verification and does not represent that this material is accurate, current, or complete and it should not be relied upon as such. The Information is not to be construed as a recommendation; or an offer to buy or sell; or the solicitation of an offer to buy or sell any security, financial product, or instrument; or to participate in any particular trading strategy. Readers should seek their own advice. Reproduction or redistribution of this information is not permitted.