Originally published by AxiTrader
The Australian dollar is mapping out a potential topping pattern as volatility increased up here near 81 cents and the 20 day ATR hits its highest level since the last time it was falling from 81 cents at the start of Q4 2071.
It's at 0.8057 this morning after trading a range of around 0.8036 to 0.8116. But that range belies the move since 11.30am yesterday when it fell 50 points from 81 cents then rallied overnight to the 24 hour high before collapsing again over the past 8 hours.
It's clearly off its lows. But, at 0.8056 it is just back inside and clinging to the bottom of the uptrend channel which stretches back to the start of this rally around 75 cents.
So the question is whether the worm is turning for the Aussie dollar, or like the kiwi's relentless run higher, this is simply a pause at the trendline before the next pulse up and towards 82 cents or higher.
It's an interesting question and one which is clearly influenced by the release of the Q4 CPI data here in Australia yesterday. At 1.9% it wasn't a terrible miss given that economists were only forecasting a rise of 2% anyway. But it was the structure of where prices rising and the still quite pace of the trimmed mean CPI rate which is running at just 1.8% year on year which has influence the outlook for the RBA and thus weighed a little on the Aussie.
That because - for better or worse - forex traders are focussed on growth and the implications for central banks. This data undermines the case for an RBA rate hike. That's something reflected in interest rate futures pricing as well as a result of the CPI release yesterday.
So, as the US dollar stabilises, and as the AUD/EUR correlation remains in the very high 90's over 35 trading days the chances of a further pulse lower are high.
But if growth is important for the Aussie dollar then so too is next week's quarterly Statement on Monetary Policy from the RBA - not to mention the governor's statement after next Tuesday's board meeting. Based on current settings in the economy it would be reasonable to expect the RBA to upgrade its growth forecasts even with the stronger Aussie dollar than last November.
We'll see.
To the chart then and the Aussie is clinging to support for the moment. But my overall target is a simple one. Just the garden variety move to the 38.2% retracement level of this rally at 0.7893.
A break of last night's low would confirm the move has begun.