AUD/USD: 0.7270EUR/USD: 1.1090Risk aversion is the name of the game once more following the steep selloff in Chinese equities at the end of yesterday’s session – down 8.5% for the biggest one day fall in 8 years. The winners out of this were the Yen and also the Euro, which was helped along by some improved EU data, and came before a slightly disappointing US durable goods release. All eyes will again be on China today, and it looks like being choppy, possibly quite volatile if we see another dramatic stock market selloff, although traders will also focus increasingly on the main economic event of the week, tomorrow’s FOMC Meeting. China aside, today will also look to the UK GDP, the Case Schiller House Price Index and the Richmond Fed Mfg Index to provide the direction.
The Aud had a rocky ride today and after a slow squeeze towards 0.7290 in Europe it took off after the downward revision in the US Durable Goods Orders, briefly reaching 0.7325 before returning quickly to the lows at 0.7270. The Chinese equity markets are not helping the Aud and at the end of the US session commodities are heavy once again (Copper -1.5%, WTI -2.25%, Gold -0.4%), which would seem to keep the pressure to the downside for the day ahead.
Currently trading close to the weeks opening levels, there is little change from the technical perspective. In the short term, bids will arrive at around 0.7250/60 but below which there is little support until we get to the monthly charts, where the next target will be at the very strong level at around 0.7200, where two important Fibo levels are lining up (0.7210: 61.8% of 0.4773/1.1082 and 0.7180:76.4% of 0.6006/1.1082) and which could appear on the horizon rather quickly. Taking some profit on short positions near here, looking to re-sell into any potential bounce seems to be a plan. If wrong, and the support does not hold, then the Aud is on its way to test the major rising trend support from Sept 2001 – joining the Sept 2009 low,- currently at 0.7130.
The topside will again see sellers at 0.7300 and at the 0.7325 session high. Beyond here, any further recovery would seem likely to come only from any prolonged weakness in the US dollar, potentially after the FOMC. If that turns out to be the case, look for a run towards 0.7350. If the Fed turn out to be overly cautious on Wednesday, then the US$ will come under pressure, giving the Aud a reprieve which could see a further squeeze towards at 0.7375 and possibly at 0.7400, above which will run towards Thursday’s high at 0.7416. I don’t think we are likely to get close to this, but if wrong, further gains would take the Aud towards 0.7430 (minor) and the weekly high of 0.7448.
For today, look for a rangebound session, but with all eyes on the Chinese markets. A break of 0.7250/60 would suggest a rapid run towards 0.7200, although there is no local data to help it on its way. Another Chinese selloff could have the Aud at new lows very quickly.
Jim LanglandsFX Charts
