The old kangaroo has some bounce left in it yet. Back at the beginning of August things weren’t looking so great. We’d crunched level after level on the way down and it didn’t look like stopping. While I thought that the falls might taper off I could still see some further losses. At the time I warned about a risk of trading off the 100 mma as we had US NFP that week.
What a crap call that was.
The low was around 15 pips below the 100 mma. The pair hasn’t been as strong as the chart suggests though and we’ve had several failed attempts at rallies which has kept the spectre of further falls in the foreground.
Well, we seem to be on a tear now and one thing I did get right was that I suspected at some point a potential US recovery would be a boost for commodity currencies.
The balance will come between how much a US recovery is worth to USD compared to how much it’s worth to commodity countries and China.
And this is what we could be seeing now, if only in its infancy. The overall economic picture in Australia is still not very good but the market tends to trade the global picture in AUD rather than the country itself, except where interest rates are involved.
And so we find ourselves looking at a potentially decent rally with the Jun/Jul highs presenting a line of resistance.
Above here we have the 0.9300 area which also provided strong resistance to any attempts at a move higher.
As usual we’ve had help from elsewhere and EUR/AUD has been in the thick of it.
Since breaking the highs into the 1.50’s in August the pair, to date, has lost over 600 pips in a week. We broke a support line from July and that accelerated the falls.
We have also broken a band of strong support from the August lows and things are looking grim for the cross. Back in August I said that a move down to near 1.40 would be a screaming buy and I’m still happy with that call. The only possible fly in the ointment is that we are coming off 5 straight months of gains that’s been worth over 2500 pips.
1.4400 marked a good big level to look at a long but that’s been broken and so I’ll look first to the 55 mma at 1.4172, and then the big round 1.4000 level. I’ll likely place my stop below the 38.2 fib at 1.3930.
The market is starting to bet on a US recovery sparking a global one, but with problems still in China and emerging markets I think it’s getting ahead of itself. In my mind there is no great US recovery yet and if it comes I don’t think it’s going to spark big global moves anyway. This could be a nice second chance to get on the EUR/AUD train for some massive gains.
