AUD/USD: 0.7170EUR/USD: 1.0865The sharp gyrations in the Jpy and another sizeable fall in US stocks were the main focus into the weekend, while elsewhere the US$ was a bit weaker against the EU majors and the commodity bloc currencies (Aud/ Nzd - but not the $Cad which hit 1.400), which took advantage of higher prices in the metals. Liquidity was thin, and this will be an increasing factor in the markets this week with most players now heading for the exit ahead of the holiday period. There is a fair bit of secondary data to navigate ahead of Christmas, as well as the important Q3 US GDP (Tue) and the November Durable Goods Orders (Wed). Yen traders should note that Tokyo will be open on Christmas Day and will see the Japan CPI, Unemployment and monthly Foreign Bond/Stocks Investment. Ahead of that, Christmas Eve gets the BOJ Minutes and a speech from BOJ Governor Kuroda. Be square!!
AUDUSD recovered strongly on Friday in late US trade, after having traded down to a trend low of 0.7096 last week, regaining the neckline of the head/shoulders formation (0.7160) and for a while at least putting further downside momentum in doubt. Too many things were pulling the Aud around on Friday, which leaves the picture rather confused. Metals rallied strongly off the lows, while stocks were sharply lower. Aud/Jpy was all over the place following the BOJ meeting and elsewhere the crosses were dominated by end-of-year flows. For the time being a cautious stance is therefore required as, with little domestic news to drive the Aud this week and any directional flows will continue to be driven by offshore events.
The Head/Shoulders formation may still come back into play although it does currently look doubtful. The 4 hour charts no look more positive and we could therefore see another run back to 0.7200 (50% pivot of 0.7015/0.7385), as happened briefly, very late on Friday in the US. If so, beyond 0.7200 could then see a run to the descending trend resistance, currently at 0.7245. I think the Aud needs to remain under here for any chance of a near term resumption of the downside, and if we go above 0.7250 then we could see a return to the previous highs at 0.7283 (15 Dec high), 0.7310 (10 Dec) and at 0.7333 (09 Dec).
If the Aud does fail below 0.7200, we would then see a return to the downside, and back below 0.7160 would then open the way towards Friday’s low of 0.7111 and to another test of 0.7100/0.7095, below which would head towards 0.7070 (18 Nov low/rising trend support). Below that would see a run at 0.7000 and eventually to the 0.6930 head/shoulder target, albeit that this may be for another day, if it happens at all.
While the 0.7000/0.7300 range that we have been harping on about for several months does appear set to continue, at least til the end of the year, I still think that selling rallies is the play and that at some stage in 2016 we are going to see the Aud much nearer 0.6000 than 0.7000. Just a thought....
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T: Australian CB Leading Indicator
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