Originally published by AxiTrader
The Australian dollar tried to rally Friday making a high around 0.8035 as the US dollar came under pressure after poor data releases for retail sales and industrial production combined with a surging pound.
But it's back just under 80 cents this morning at 0.7994 and showing some signs that perhaps traders are moving away from the kind of assets that are usually associated with Australian dollar strength.
I say that naturally because metals prices have been under pressure over the past week or so. Copper is back on support at $2.92/3 a pound. Likewise, iron ore has been under pressure and is sitting right on support at the moment. Nymex China iron ore futures are sitting right on support at $74.50 a tonne with a break below $74.40 signalling the chance of a very deep retracement.
That would hurt the Aussie dollar.
And of course the fact that the pullback in metals is both a combination of an overly long market and the recent poor prints for Chinese data is a negative combination for the Aussie dollar.
For example just this month the Citibank Economic surprise index for China has fallen from +35.9 on September 1 to just 7.9 as at COB Friday on the back of these data misses.
And that is where the rubber hits the road for investors. While the speculators sell metals in Shanghai, longer-term traders - investors - have expressed their preferences differently. We've seen the 3 month outperformance of global metals and mining shares to the total global stock market reverse for the first time in 3 months.
As I noted in my Overnight Wrap earlier today this ratio is one of my favourite indicators of sentiment for the AUD/USD. It simply shows the relative performance of MSCI metals and mining shares versus the overall performance of the MSCI global market. And it went backwards last week for the first time since the week ending June 16.
Of course, that reflects the price action of metals themselves. But it’s possible pointer to the fact that investors focus might be moving to other assets once more. Naturally, it doesn’t guarantee the Aussie will fall as there are still many positives. But it is a warning sign.
Just something to watch with copper and iron ore at important levels and with such an important FOMC meeting this week.
Turning to the price action now and there is nothing really to see on the dailies other than that the AUD/USD is walking out of the uptrend. That's an important bit of technical information as it suggests - via a lack of price action - that traders are not looking at the uptrend as a key driver of positioning or stops.
I can probably even take it off my charts at some point this week. For me, the dailies are best summarised with the following. 0.8050/60 looks like solid resistance and it appears lower levels still beckon to test the true level of support. Thursday's low in the 0.7950/55 is first support but 0.7850 is th target.
On the 4-hour chart, the recent choppy price action is writ large.
I could make a case for a head and shoulders pattern - maybe - with the 0.7950/55 region the key support and then the trendline comes in at 0.7935. Or I could just draw a sideways channel which would give me a 0.7950/0.8050 range - I like that one and either way 0.7950 looks important.
Very short term a break below 0.7983 or above 0.80345 would get things moving.
On the week ahead there will be a talk from BoE governor Mark Carney in Washington tonight, the FOMC meeting Wednesday, Kiwi GDP Thursday, and then the BoJ meeting and announcement Thursday as well. Here at home, it’s all about the RBA. Minutes and then speeches from Luci Ellis and Phil Lowe.
Have a great day's trading.