AUTOREFRESH 
AUD has me a bit confused
The EUR is heavily oversold in my opinion and we are at the beginning of a retracement phase. The political and financial issues have not disappeared overnight, it’s simply that the market has sold too much and is now taking back the excess. The same applies to GBP/USD, perhaps even more so. The one currency pair which has me a little confused is the AUD/USD. It has been over valued for some months now and let off some steam by falling to a technical support level at .8570. I am now undecided as to whether we are in an .8570/.8850 holding pattern before the fall resumes, or whether we are about to bounce straight off the support level back to levels above .9000. If I could figure out what the AUD/USD is going to do, I think the overall picture would be much clearer to me.
Me too Sean! I just went long having seen it bounce above the 0.8732 level, and now I am wondering whether that was such a smart move! Fingers crossed on this one for me!
Best of luck Guy, it does seem a bit like a coin-toss at current levels
Thanks Sean, yes not the ideal way to do things really
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Sean,
With regard to your comments about the AUD-USD, placement of any serious longs at this juncture of time might come back to haunt you.
Consolidation from .85770 continues, no doubt, but any upside movement should be contained by .8864 (which represents a 38.2% retrace of the move from 0.9327 to 0.8577).
Bottom line: the AUD topped out, back there at .9404, and we are going down for at least a probable 50% retracement (of 0.6008 to 0.9404) to 0.7706 (before any serious upswing starts again).
Thanks Solange, that certainly is a solid technical argument
The AUD/USD is the proxy for the global reflation trade.
http://www.telegraph.co.uk/motoring/news/7197024/Russian-car-market-in-massive-sales-slump.html
It has done well on the sheep’s back of China demand, Govt stimulus and high migrant intake of wealthy South Africans, British, Asians and Indians.
The global reflation trade is now up against the headwinds of open books and the balancing of the excesses, as money lenders will now decide to accept higher returns commensurate with risk.
http://www.cnbc.com/id/30308959
Think as Sean says, could be a coin toss! Gold appears to be bouncing, the possibility of higher rates might help, and one might say USD is taking a breather. Lets see!
Hi Sean,
Discovered this site a few weeks ago and it has now become a regular read for me. Its a great site – news, informal chats, all in bite sized quips. I have seen BIS mentioned often here involved in FX markets trading. Is this the Bank for International Settlements, or is it some other BIS?
Thanks for the great insights.
pandu
My take is that aud/usd is the proxy for the commodities/emerging markets component of the global reflation trade and that eur/usd and eur/jpy is the proxy for the equities market/established markets component of the reflation trade. Part of the confusion in the market is that there’s a huge deflationary impact of the de-leveraging from the banking, housing, consumer credit crises at the same time that there’s the inflationary impact of the growth in emerging markets such as china, india, brazil, etc. To me, that means short the euro on rallies and buy the aussie on dips. That the aussie has an interest rate differential, of course, helps it on the upside as well. As for if the aussie is overvalued, look at the 20yr chart: it traded in a 50-80 range and, given the emerging markets, should probably be in a 60-90 range now. But there’s so much hedge fund money in currencies that it catches one heckuva bid… I personally think it’ll hit 98 before it hits 75. Why? You don’t fight the Fed- or the plunge protection team. The machines took over this past Friday at 1:30- every market went up in unison. No one in their right mind takes on that kind of risk, during a massive sell-off, going into a weekend. The G20 needs reflation or they’ll go bankrupt. So they’ll get it.
Hope you’re right JR! Afraid I can’t watch it any longer – nearly 01.00am in UK, so off to get some shut eye! Good luck all.
Technically correct, but how about the fundamentals? Everyone is looking for a move down to the 85.00 or even the 80.00 mark but not up to the 90’s. Interest rates are higher in Australia than anywhere else in the developed nations and for few good reasons:
- House prices are bubbling (+ 14% in 2009)
- Unemployment is low (5.5%)
- Inflation is somehow controlled but on the hot side, like the weather
- The gold price is elevated and is still consolidating, courtesy of the Chinese, the Indians and all the other speculators.
Now, every Aussie(dollar) trader remembers the collapse of the currency down under the 60.00 level, thanks to the panic attack of the RBA and its 100 basis points slash at a time of interest rates and the systemic risk of the stock market. But this time is different. If Australia can not hike rates when the rest of the world is commited to low interest rates for ever, the differencial of rates is surely still in favor of the Aussie.
The bottom line is that the US dollar is overbought against every single currency; Fanny Mae, Freddy Mac and the insolvency of California deserve more attention than the P.I.G.S.; and yes, I am long Euro and Aussie, against the US dollar, and I am still waiting for “the morning after” when all the charts mates of the world will wake up and bond with the fundamentalists!!! Voila!
Hi Pandu. Yes the BIS is the Bank for International Settlements, central bank to the central banks.
Voilaroo, don’t forget to factor in the business cycle or the commodities/equities super cycle in your fundamental analysis…
Regarding the equities, the question is, where are we going from the current levels ? Is it just a small correction or are we going down much lower?
I am fully aware of the facts that the trend is your friend (= buy US dollar) and about the carry-trade and reverse carry-trade effects. Any serious collapse of the stock market will trigger an other fly to safety of the green note.
I guess that, involuntary, I am a (short term)wallaroo-bull of the stock market, which suits my long Aussie-doll position. But my eyes are wide opened. Any suspect positions, like Goldman Sachs caught shorting the S&P while advising their clients to buy…, and I will follow the flow and reverse my positions.
If your hear anything, feel free to inform me, Jr! I do live in Australia and will happily share with you few bottles of wine against a bit of your oil!!!
Hey Voilaroo, I lived in Australia for a couple of years and miss the good stuff, Petaluma! Everything you need to know about the market you can find in a chart of Goldman Sachs. It formed a head-and-shoulders pattern in December when Sen. McCain advanced the Glass-Steagall legislation. Goldman is a great leading indicator for the equity markets. It has a PE ratio of 8 and is trading like a wounded duck. When you see mergers and acquisitions activity, you’ll know that the equity market is out of the woods. ‘Til then, the markets are propped up by the governments. Hey, looks like the euro is dropping, gotta run…
Hey, Skippy. You are right, but are wrong.The currency you are selling is not the $ but the Yuan until the morning after of course..As far the stock mkt is concerned, I’ll stick with my earlier comment, it has a strong sense of “déjà vu”, keep it small but short to add on strong rebounds.
Does China buy USD against their own currency, and then turn around and buy US debt with those dollars?
As the USD is the main international currency of trade, China earns vast amounts of USD from their exports. These USD are what they use in the markets to buy Gold, EUR, or whatever. So they are always a natural seller of USD as they earn so many of them constantly. That’s the simplified version.
Exactly what I needed. The pints just keep adding up…
Crikey! Jr’s gone into the Coonawarra! And Cheg’s telling me that the Us dollar is like the yuan. Did you know fellows that it is now impossible to buy garlic in an Australian supermarket not made in China…, just like the rest?
Should I come to the conclusion that I have to force myself to flat my position and buy the yuan(or the dollar), because really, as long as the old and the new generation keep talking and hating the P.I.G.S, there is no hope for a contrarian to have his slice of bacon under the Aussie sun?
Bugger!
There’s a mad French guy in Tassie who sells great garlic on the markets but you’re right otherwise, almost impossible to find local produce
Roo, when the aud/jpy hits 76.2 or aud/usd hits 857 i’d say go with your contrarian instincts, but buying the aussie and the euro at these levels is fighting the tide. the s+p hit a top of 1150. a regular 10% correction is 1035, and we almost got there friday. a 20% bear market correction would take us to 920. i’m guessing that the market is enjoying an oversold bounce at the moment and that once it digests the full implications of germany either bailing or not bailing out greece, (will the bailout work or will it require subsequent bailouts? will other countries demand bailouts? will germans eventually balk at the idea of subsidizing club med? will club med eventually want to regain control of their monetary policy?) then it’ll sell-off again and see if the 1035 level holds. that’d be a great time to get all contrarian into long aussie positions. Til then, as Ed Seykota said, the trend is your friend until the end when it bends…
Thanks as always Sean. I’m off ’til NYC…
“Fundamentalists and anticipators may have difficulties with risk control because a trade keeps looking ‘better’ the more it goes against them”. Good old Ed edd n eddy Seykota! Thanks JR! I knew only the first part of ” the trend is your friend”, but ” until the end when it bends” made my day!
But, but, but…, let’s say, now, that you are a fundamentalist 100 pips (euh, only 50 updated) on side on your position, shouldn’t you try to rally some anticipators mates of yours to end the hated campaign against the euro and the love for “the green(over)shoot? Hey teacher leave those P.I.G.S. alone!!!
Answer: no. Thanks Sean, for the explanation, ” ACB is selling AUD/USD and EUR/USD”
“Win or lose, everybody gets what they want out of the market. Some people seem to like to lose, so they win by losing money”.
Everybody is a winner… G’day to you all!!!
Hey Roo, The Market Wizards, eh? good stuff. Have you read “Inside the House of Money”? That’s also a good read.
Not this one JR! I’m too busy reading Sean’s wrap and the ‘Suggestions that Chinese military considering Treasury sales as Taiwan retalition”. I agree with your comment earlier about that topic, but…, could it be the end (of the US dollar), when it bends? I’ve got to throw few prawns with garlic made in China on the bbq, so i won’t nail the tail off the tale…