Aussie dollar tenuously poised below important resistance level

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Tenuous is not a word I use often when talking about currencies of other markets. But I thought it is apt this morning given the Aussie’s tight 36-point range to kick off the week, the inside day Monday represen​​ts, and the fact that that the 200-day moving average continues to loom large over the AUDUSD at the moment.

Nothing really happened in the past 24 hours other than the US dollar weakened, risk appetite went even better bid, iron ore hit a 3-month high, copper stayed strong, base metals did well – and the Aussie dollar is up just 0.27% at 0.7665.

I’m sure you can feel the irony dripping off the above paragraph. And it is because of the Aussie’s inability to really grasp these positives and push up to, let alone through, the 200-day moving average that I sounded the warning by using the word tenuous.

Of course, the reality is that in this end of year and holiday period the likelihood of new – and large – positions being instituted is remote. That means the recent trends of Aussie and USD weakness are more likely to persist than materially shift direction.

And that is why the 200-day moving average is so important for the Aussie and for traders. A break above the 0.7691/92 region where the 200-day moving average sits would for many traders be a material shift.

So for the moment, that remains the big level to watch topside with the 0.7605/15 support.

A break of the 200-day moving average could easily see a run for the 38.2% retracement level of the fall from 81 cents to the recent low which comes in at 0.7731.

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I’d expect that level to hold for the moment.

And whichever way it breaks – up or down – given thin markets a quick 40 or 50 points could be in the offing.

Could the Reserve Bank of Australia (RBA) minutes be the catalyst for that break? Unlikely, but possible. We’ll know at 11.30am AEDT today.

US dollar

In other forex market developments, I don’t want to overegg the whole USD can’t take a trick story, but gee whiz the reversal which started in Asia yesterday and continued overnight again suggests that traders just don’t buy into any story that suggests USD strength. Not the actual growth level, not the fact the Fed is so far ahead of the ECB or BoJ when it comes to monetary policy, not what the Fed says it is going to do, and not that the tax plan could add an additional impetus to growth. No forex traders are focused it seems on the fact that Europe is growing strongly, that Theresa May has had some encouraging conversations about trade, and the fact that with synchronised growth the world is growing not just the US and that means other central banks will follow the Fed – eventually.

That’s the rhetorical view that supports the recent price action and it makes sense. Just take a minute to think about what you read in the press about Europe and the US. The former is mostly positive these days and the latter is mostly negative. Growth in the US is seen as not trustworthy, the bond curve had folks running around worrying about a recession. Have no doubt another recession will come – eventually – to the US and the world. Not yet though. But the fact the market has this bias is an important input into the trading equation. Something to understand now and something to watch for a change. Because if change does come we will be at the start of one heck of a US dollar rally.

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