AUD languishes as forex traders had bigger fish to fry

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The Aussie dollar remains trapped below the 200-day moving average and the daily ranges are getting even tighter as traders wait for the next shoe to drop or are off fighting other battles in the Euro, Japanese yen, British pound and Canadian dollar.

Indeed, while the Australian dollar traded just a 0.7652 – 0.7679 range against the US dollar over the past 24 hours the Euro has pushed back up to 1.1870, USDJPY has risen to 113.41 and the pound was higher earlier before the resignation of Theresa May’s effective deputy under a cloud.

So, there has been a bit of Aussie dollar action on the crosses. But it’s all been driven by the other side of the cross.

Indeed, the EURAUD tested the underside of what looks like the neckline of the head and shoulders pattern I highlighted in yesterday’s piece. It will be interesting to see where EURUSD goes now and if it can get up and through 1.1930. If not EURAUD may continue to respect this resistance.

Back to the AUDUSD though and I have to wonder how long the Aussie can stay weak given that the move higher in bonds over the past couple of days looks like a clear recognition that the global growth outlook is on the improve and that just maybe wages and inflation around the globe might tick higher in 2018.

That recognition, the positive outlook for Chinese growth yesterday (CASS said 2018 growth should be 6.7%) and the clear message that Xinomics is not trying to slow growth as a result of a credit crackdown but rather slow the rate of growth of credit is another positive signal for the Aussie dollar.
Indeed, last night copper and base metals were again higher.

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But the Aussie is becalmed.

Of course, it’s not the time of the year for traders to institute large new positions. And when you throw in the lack of bond spread (even though the 2-year is back in the black at +9 to US 2’s) and of course, the 200-day moving average is clearly something traders are watching we’ve ended up with a period of sideways movement.

So it remains the case that the Aussie’s range looks constrained by the recent low at 0.7626 and the 200-day moving average which now sits at 0.76924. A break either side is necessary to get things moving.

In other forex market developments, the US dollar index forming a head and shoulders pattern and thus about to take another leg lower. That’s the question I’m asking myself as I look at the daily chart this morning. Certainly, sentiment continues to be anti USD – at least against the Euro which is the primary driver of this DXY index – and the key level to watch is 92.50. DXY is at 93.31 this morning, down 0.15%.

Euro doesn’t quite look the same (in inverted terms of course) but it is heading toward trend line resistance. For the moment 1.1930 topside and 1.1830 bottom side are the levels to watch.

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