Aussie dollar holding above .76 cents

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The Australian dollar had a cracking week last week rising from a low of 75 cents to end Friday’s New York session at 0.7639.

That gain on the week of 1.8% was, in some ways a least, a little disappointing after Thursday’s release of the November jobs numbers was so strong with the addition of 61,600 new jobs during the month – 40,000 of which were fulltime.

Indeed, energised by the following winds of a strong recovery in metals, copper in particular, and iron ore Friday, there was some expectation that the Aussie dollar could have made it up to and through the 77-cent level.

But, alas, sellers were lurking at the very important 200 day moving average Friday. That’s a very important technical and psychological indicator that traders watch. For many, it’s the delineation between a bull and bear market. At present, it’s fairly flat and sitting around 0.7691 which makes this 0.7690/0.7700 region an important one for the Aussie.

That this 200-day moving average level held should be no surprise given the US dollar was stronger on Friday night. Euro is lower, USDJPY higher, the Pound collapsed back to recent lows and the Kiwi and CAD both reversed along with the Aussie.

So, there is some sign that the elusive narrative in forex I have been writing about might be coming back. Certainly, stocks buy the economic outlook and the impact of the tax cuts even if bond traders still don’t and forex players are far from convinced.

And that could be a handbrake on this Aussie dollar rally. At least against the USD. We’ll see.

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For the moment looking at the potential catalysts for movement, they start to dry up on the AUD side of the cross this week. The RBA minutes tomorrow are probably the biggest trigger point and while today’s MYEFO – the Federal Government’s Mid-Year Economic and Fiscal Outlook – is interesting I’d be surprised if it moved the Aussie materially.

So, it’s to the other side of the cross, the USD, and the passage of tax cuts, that impact on markets and the overall push by the USD to break higher across the board which will drive the AUDUSD in the week ahead.

Level wise the key ones I’m watching to precipitate a bigger move are 0.7605/15 on the low side and 0.7691/95 on the topside. A break of either would see a 40-50 move and then we’d really see where support and resistance lie.

In other forex market developments, European data is not terrible. But US data is finally printing better than that of Europe – at least in terms of the Citibank economic surprise indexes. You can see it in the upgrade to Q4’s GDP model forecasts I’ve highlighted above. So far it hasn’t really helped the US dollar and frustrated US dollar bulls like my rhetorical self (remember my trading self takes signals from my system). But I sense a change is coming. The market is still very long of Euro’s and as at last Tuesday, before the Fed decision was announced, Euro bulls had taken net positions (in terms of specs reported by the CFTC) to the highest level since May 2007.

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That sets up a potential for reversal if – and I say if – a catalyst turns up in the week or weeks ahead. Of course, it also shows the conviction of the bulls and highlights the theme I’ve been talking about where the USD can hardly take a trick. But this level of positioning and the fact I was part of just 2% of respondents in a big global investment bank survey who though EURUSD could end the year under 1.16 suggests the balance of risks remains downward for the Euro.

GBPUSD looks similarly finely poised with a risk of further downside. Though positioning is nowhere near as extreme a break of last week’s low at 1.3303 could usher in a fall of at least another cent. USDJPY looks well supported at 112.00, but would have to breach 113 to break back into the uptrend it broke down and out of last week.

The CAD is interesting as well and while it’s trading in its box at the moment the comments by Bank of Canada Governor Poloz could be a catalyst for a break lower.

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