72 or 76 cents? Aussie dollar still languishing

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The holiday season is in full swing, Christmas parties and work get-togethers abound. But it’s too early for forex and other market​​ traders to knock off and enjoy the festivities as a raft of important data and central bank meetings this week could materially alter asset prices and where they finish 2017.

With the NAB business survey, Westpac consumer sentiment and the November jobs data all out this week in Australia and with the FOMC meeting in the US also out – not to mention a raft of other central bank meetings and important global data – it’s a huge week for the Aussie dollar.

With all these potential catalysts and with the proximity of the trend line which runs back to the 2015 low and which sits not too far below 75 cents, the AUDUSD’s fate as we head toward the end of 2017 is in many ways up for grabs this week.

Looking at the chart of the weekly price action of the Aussie it’s obvious how important this trendline – which is actually the bottom of the uptrend channel for the past 2 years – is for the outlook at the moment. My sense is to -as always – respect it. Unless or until it breaks.

0.7480/90 is the level to watch.

That the Aussie is languishing at the moment – along with the CAD and Kiwi – is kind of remarkable given that the global growth outlook is so positive for the year ahead.

But this morning at 0.7507 the Aussie still looks like a shot duck. It’s only just clinging to 75 cents despite all the positivity about global growth, the Chinese data Friday, or the rally in commodity prices that engendered. That’s because of the interest rate pick-up, or lack thereof continues to dominate discussions.

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And let’s face it last week’s Australian data with a GDP and Trade miss didn’t help things. So, the AUDUSD needs to hold this 2-year trendline to avoid a capitulation.

I think it should, I’m interested though to see if it can.

Which brings me back to where I began. It’s the local data and FOMC decision – not in December but what the Fed projects about 2018 – which is the key. If last week’s price action showed us anything it is that forex traders have a predisposition to sell Aussie on rallies at the moment and to take any bearish news – data – as an excuse to hit the sell button.

So, we’ll need to watch headline NAB business conditions and confidence, where consumer sentiment goes and very importantly what happens to Australian employment Thursday morning at 11.30am.

But there is also a chance of a material repricing of the USD if the Fed is as hawkish as it might be. Perhaps Janet Yellen’s comments on inflation recently were meant to give room to accommodate a strong economy on the back of tax cuts and not jack up the Fed funds rate more than 3 times next year.

Yet the market isn’t even pricing that. So, the risk is high of a repricing of interest rate expectations and this will flow into the USD.

Looking at the daily charts there is nothing that suggests traders are going to catch that falling knife of the Aussie today. But like Friday it is a fair bet that the lack of real catalysts globally today and the big amount later this week that the overall range will be relatively tight.

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Levels to watch are Friday’s low at 0.7501, then the trendline which comes in at 0.7491 but because its so long and a slight angle miss could change that level I’m saying 0.7480 has to break to confirm. Topside Friday’s high at 0.7531 is the level to watch.

In other forex market developments, the EURUSD is at 1.1766 this morning despite a strong US jobs report and despite the fact this guarantees a US Fed hike this week and a likely fairly hawkish Fed dot plot and upbeat statement on the economic outlook after this week’s FOMC decision. It also comes despite the fact that for the first time in almost exactly eight months US data flow is printing stronger than EU data when measured by the Citibank Economic Surprise index. Yet the US dollar can hardly take a trick. I’m not amazed by that because I have seen this type of reaction many times since the Euro was first launched – on both sides of the bull/bear divide. But I remain surprised the USD has not done better in the recent few months.

And to me, the big risk for the Euro bulls, or indeed to my bullish case, is this week’s FOMC meeting. As I’ve highlighted last week the fact that the tax cut bill is at the conference stage to reconcile the House and Senate’ s approach suggests the FOMC won’t be able to ignore the impact on the economy. Certainly, Fed chair Yellen will be asked about the impact. And of course, the dot plot will be important in indicating what the Fed is expecting. US rates markets, are for me, still under-pricing the path of rates in the year ahead. Anyway, that’s for later this week I guess.

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In the UK, the big news for me is the that even with the announcement that the Brexit negotiations can move to the next stage, GBPUSD reversed course to again test the recent uptrend. That’s a bit of a buy the rumour sell the fact reality and it sets up and interesting trade if Thursday low gives way. The chances of a big fall have increased and I’ll be selling some I think if that level gives way.

But as the price action in the Kiwi and the CAD, it’s not just an AUD thing. These three currencies are struggling. Kiwi price action Friday was awful and the CAD is heading back to recent range highs in USD terms. 0.6780/0.6800 remains a critical support for the Kiwi.

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