Currency Updates:
The AUD/USD made an impressive recovery from lows seen during the Asian session with the USD under pressure across the board. Similar to yesterday’s USD strength, I wouldn’t read too much into any of these moves as they seem like usual market ‘noise’ to me. There isn’t much of note on the economic calendar and after soft sessions on most overseas equity markets, the danger on the Nikkei could be for another sell-off.
TECHNICALS: There has been a definite flattening of the short-term downtrend (see chart) and the failure to consolidate the break below .9580 suggests that we should get a period of consolidation or retracement in coming sessions. Support levels are at .9590 and obviously now at yesterday’s .9530 lows; resistance should be firm at .9700 and .9780 in particular.
CROSSES: Daily support at 96.90 in AUD/JPY is growing in significance (see chart) and if the Nikkei turns lower later today then we could see a break below this level. The next support below there isn’t until 93.00.
Elsewhere the AUD has remained fairly steady but I still favour selling any AUD rallies against the NZD or the EUR. Buy dips in EUR/AUD back towards 1.3200 and sell AUD/NZD rallies towards 1.2000.
ORDERS & FLOWS: Despite the big moves there were no reports of any major AUD flows with banks and prime brokers reporting elevated turnover from the usual leveraged players. Sovereign players bought large amounts of AUD/USD yesterday during Asian trade and this will eventually have an impact on the speculators.
INTRADAY CONCLUSION: Much will depend on what happens in the Nikkei and in AUD/JPY; if they both break lower then AUD/USD will be back on the 95 handle. Sentiment remains AUD bearish but speculators are short, so we could still get some short-covering rallies. Perfect conditions for range trading; buy big dips, sell big rallies.
TRADE OF THE DAY: I’ve been long USD/CHF for quite some time but there does seem to be a danger of a topping formation emerging (see chart). I normally don’t encourage break trading, but if this pair breaks and holds below .9600 then we could see a clean-out of long positions.
