AUDUSD breaking bad
Tony Sycamore May 15, 2019 4:08 AM
For the past three months, the AUDUSD has confounded both the bulls and bears as it rotated between support near .7000c and resistance at .7200c. Finally, this week, the AUDUSD appears to have made a decisive step in favour of the downside. Overnight calls by President Trump for the Federal Reserve to cut interest rates to support the economy and optimism that talks with China would soon yield a trade agreement have for the moment calmed the nerves of U.S. equity markets.
For the past three months, the AUDUSD has confounded both the bulls and bears as it rotated between support near .7000c and resistance at .7200c. Finally, this week, the AUDUSD appears to have made a decisive step in favour of the downside.
Overnight calls by President Trump for the Federal Reserve to cut interest rates to support the economy and optimism that talks with China would soon yield a trade agreement have for the moment calmed the nerves of U.S. equity markets.
However, outside of equities, there is scepticism that an agreement can be struck quickly. This is because the U.S. has demanded that China grant constitutional status to a trade agreement, something that China is unlikely to accede to as it would undermine Chinese sovereignty.
With the scene set for the standoff between the U.S. and China to continue, domestic data in Australia has further undermined support for the AUDUSD. This morning, Australian Wage Price Index data for Q1 printed at 0.5%, with the year on year rate remaining stable at 2.3%. This was below expectations and still, a long way below the 3.5% year on year pace the RBA has indicated is consistent with its inflation target.
Yesterday, the NAB business survey showed confidence falling to -0.3, its lowest level in over four years. Keep in mind that there has not been a fall or negative reading for business confidence that has not been followed by an RBA rate cut. Furthermore, the employment index fell to its lowest level since 2015.
Yesterday’s fall in the employment index combined with the RBA’s focus on the labour market has placed even more importance on tomorrows labour market data for April. As a guide should the unemployment rate edge up to 5.2% or higher, it is likely to see the AUDUSD’s slide accelerate as calls for interest rate cuts are bought forward.
In this case and providing the AUDUSD remains below the band of resistance .6980/.7020c there appears room for the move lower to continue towards the January 2016, .6826 low, with risk for a test of the flash crash low from earlier this year at .6725. Traders, therefore, might like to consider scaling into a short AUDUSD positions on bounces towards .6960/80 with a stop loss placed above .7025.
Source Tradingview. The figures stated are as of the 15th of May 2019. Past performance is not a reliable indicator of future performance. This report does not contain and is not to be taken as containing any financial product advice or financial product recommendation
TECH-FX TRADING PTY LTD (ACN 617 797 645) is an Authorised Representative (001255203) of JB Alpha Ltd (ABN 76 131 376 415) which holds an Australian Financial Services Licence (AFSL no. 327075)
Trading foreign exchange, futures and CFDs on margin carries a high level of risk and may not be suitable for all investors. The high degree of leverage can work against you as well as for you. Before deciding to invest in foreign exchange, futures or CFDs you should carefully consider your investment objectives, level of experience, and risk appetite. The possibility exists that you could sustain a loss in excess of your deposited funds and therefore you should not invest money that you cannot afford to lose. You should be aware of all the risks associated with foreign exchange, futures and CFD trading, and seek advice from an independent financial advisor if you have any doubts. It is important to note that past performance is not a reliable indicator of future performance.
Any advice provided is general advice only. It is important to note that:
- The advice has been prepared without taking into account the client’s objectives, financial situation or needs.
- The client should therefore consider the appropriateness of the advice, in light of their own objectives, financial situation or needs, before following the advice.
- If the advice relates to the acquisition or possible acquisition of a particular financial product, the client should obtain a copy of, and consider, the PDS for that product before making any decision.
GAIN Capital UK Limited (trading as “City Index”) is an execution-only service provider. This material, whether or not it states any opinions, is for general information purposes only and it does not take into account your personal circumstances or objectives. This material has been prepared using the thoughts and opinions of the author and these may change. However, City Index does not plan to provide further updates to any material once published and it is not under any obligation to keep this material up to date. This material is short term in nature and may only relate to facts and circumstances existing at a specific time or day. Nothing in this material is (or should be considered to be) financial, investment, legal, tax or other advice and no reliance should be placed on it.
No opinion given in this material constitutes a recommendation by City Index or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person. The material has not been prepared in accordance with legal requirements designed to promote the independence of investment research. Although City Index is not specifically prevented from dealing before providing this material, City Index does not seek to take advantage of the material prior to its dissemination. This material is not intended for distribution to, or use by, any person in any country or jurisdiction where such distribution or use would be contrary to local law or regulation.