The Australian dollar bounced from a brief foray under .78 cents overnight.
Is that it? That’s the question many forex traders will be asking themselves this morning after the Aussie dollar bounced back from a brief foray under 78 cents yesterday afternoon amid what was across the board US dollar buying in early Europe.
The move looked like one of those “let’s give it a belt and see what happens” type of moves. It’s a move we often see in forex markets as Europe enters the fray and one I’ve seen in many currencies and on both sides of the market – selling and buying – over my decades in the markets.
The resilience of the AUDUSD at, just below 78 cents, was instructive. The sellers spend about 25 minutes trying to knock it down and through 78 cents on the initial pulse before it rallied to 0.7830ish.
It was exactly the sort of price action that leads me to close positions – in this case, short AUDUSD – when I see it. The base had been built and the Aussie rallied along with the Euro and pretty much the entire forex universe as traders backed off the US dollar buying.
So at 0.7850 this morning the Aussie dollar is not far from where it was this time yesterday. The US dollar is a little weaker, the Euro a touch stronger and any thoughts this is other than a US dollar driven move in currency markets at the moment has been dispelled.
And that means where the USD dollar goes so goes the Aussie. That, in turn, is going to very much depend on how the data we are about to see in the next couple of weeks prints here at home and in the US.
Tuesday we have the RBA board meeting and governors statement, we get global PMI’s starting with the official Chinese reads over the weekend, and of course, we also get the all-important non-farm payrolls from the US next Friday.
It remains my contention that the narrative for the US dollar has turned. But that narrative won’t be more than messy price action near the lows unless the US data flow comes in to back up both Fed assertions it will need to continue to raise rates and the markets believe that any Trump tax stimulus will be building on an already strong US growth plate.
That upcoming data is the key was writ large last night when the market ignored the 3.1% Q2GDP print for the US and the myriad comments from ECB officials that rates will remain accommodative.
It’s always the case that after a big trend like the one we’ve seen for the US dollar since April that the first wave of buying is opportunistic and low conviction. Weak data next week and the US dollar will struggle – the Aussie would swiftly rally.
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