Originally published by AxiTrader
Key Takeaway
The Aussie dollar is trapped with the bulls continuing to buy on dips but the bears on the offer above 77 cents.
It's a classic example of the market being at a bit of a standstill because all the current good news is priced while the bears expect the bad news to start flowing soon.
How the battle plays out depends on the Fed, its speaker's message this week, its actions in March. And of course all eyes and ears are on present Trump's address to the joint sitting of Congress Tuesday US time.
What You Need To Know
Last night the Aussie traded a fairly muted 50 point range again as support around 0.7560 held again but resistance and supply above 77 cents held firm.
That range trading makes sense when you take into account that many of the positives for the Aussie dollar are already baked into the cake and the overall backdrop remains positive but sellers still lurk above 77.
Why the bears are camped above 77 cents is easily understood with references to market expectations on the outlook for the Australian dollar.
Most forecasters still see an environment where the Fed is raising rates as USD supportive. So naturally as the other side of the AUD/USD exchange rate that's an important thing to factor into any outlook.
Even just this week as forecasts for the Aussie have been raised by a number of prominent banks the trajectory they are predicting is still lower - they e just taken out the big crash in the AUD/USD many expected.
So sentiment and fair value are positive for the Aussie. It's just that many forecasters don't expect that to last.
Speculators are a little different as I highlighted yesterday. They've increased their bets on the Aussie rising and have net longs at the highest level since November last year.
So we have a fairly tight range trading market at the moment. Indeed the Aussie hasn't traded below 76 cents since breaking above that level on February 2.
From a fundamental standpoint I think there is a strong risk that by the end of this week the market is refocussed on the March FOMC meeting - due mid month - and the fact that it is actually live. I've discussed that in a separate post earlier today.
That could weigh on the AUD/USD and from a technical standpoint I am still expecting a move toward the 0.7600/20 region. You can see the set up in the chart below.
Naturally today's quarterly balance of payments data and tomorrow's GDP print are important for the Aussie. But in the current environment where the market - or at least forex traders - still see policy divergence as a key driver of exchange rates unless the Fed changes tack the bears are likely to remain sellers above 77 cents.
Have a great day's trading.