AUD trading under heavy pressure

Friday was volatile following the release of the strong US employment report, finishing a hectic first week of 2016, with the prospect of plenty more of the same to come in the months ahead. Risk assets were sold heavily, with US stocks and the commodity bloc currencies, including the Aud, all being hard hit, while defensive assets such as Gold, Yen and Chf were all beneficiaries. The focus this week will again look directly towards China, with both the stock market and the Yuan in focus. Elsewhere the beginning of the corporate reporting season begins with Alcoa’s results today and will have a strong influence on the direction of US stocks over the next couple of weeks. There is a fair bit of secondary data due as well, much of it later in the week. Today is a bit thin on the ground, with the EU Sentix Investor Confidence Survey being the main focus, although before then Asia gets the NZ Building Permits, the Australian ANZ Job Ads, and the Chinese New Loan figures. Tread carefully!

 

After an early spike up to 0.7075 in Asia when the Chinese markets stabilised, it was pretty much all downhill for the Aud on Friday, and saw a new trend lows of 0.6943 right at the end of the session. Not even the selloff in the dollar seen against the other majors following the release of Fridays’ US jobs data could help it out and the weak finish in the US equity markets made sure that risk assets, including the commodity bloc currencies, remained under heavy pressure into the weekend.

 

The Chinese Inflation data, released over the weekend, came in at close to expectations and should have little immediate effect on the markets although much of the focus in the coming week will again be spent on closely watching how events unfold in China. The Yuan fixing and the stock markets will be at the centre of attention, with the New Loans (December) due today, and the Trade Balance, due on Wednesday, also to be thrown into the mix. The domestic interest will lie in Thursday’s Unemployment figures (Exp 5.9%, -12.5K, PR 65.2%). The hobs figures have outperformed expectations recently so the market will be looking for a pullback. Another solid result would further reduce the chance for a near term rate cut from the RBA.

 

The AudUsd charts look pretty sick and a test of 0.6935 (29 Sept low), the trend low of 0.6900 (30 Aug), and lower, would not surprise in coming days. The next meaningful support would be at 0.6769 (March 2009 low), and eventually I think we head towards the head/shoulder target that we have been harping on about for almost 2 years, at 0.6000! http://www.fxchartsdaily.com/audusd-aud-heading-0-6000-check-monthly-chart/

 

In the short term, the charts are oversold and the hourlies are showing some bullish divergence, so I would not be too aggressively short at these levels. Minor resistance arrives at 0.6980, 0.7000 and then again at 0.7048 (23.6% of 0.7327/0.6962) and at Friday’s high of 0.7076.

 

Selling rallies for a continuation of the medium term move lower would seem to be the plan, although I suspect that we may see better levels to sell into. In the bigger picture though, slowing demand from China is going to do nothing to help the Aud and the carry trades are getting blown to smithereens! AudJpy is already down by over 7% this year and we’ve only had 5 days of trade!

Jim Langlands
FX Charts