Currency Updates:
We saw some large flows and excessive volatility over the last 24 hours. Higher-than-expected domestic inflation data saw the AUD/USD take out technical resistance at .9715 before stalling at its 200-DMA near .9750. Breaking news out of the Chinese banking system which elevated some default risk then caused risk trades to crash lower (NZD/JPY during Asia, GBP/CHF during Europe). Add in to the mix a more dovish BoC statement and we end up with some very large moves. NZ trade data and the HSBC version of Chinese manufacturing PMI are the main event risks on the economic calendar.
The 200-DMA near .9750 is emerging as the key technical level (see chart) and a clean break above there will usher in a swift test of parity. Support levels should be quite strong now near .9525 where a trend-line converges on previous highs. Short-term charts are unwinding some overbought properties and favour further losses.
AUD/JPY broke above important technical resistance levels and then promptly reversed very sharply indeed (see chart). There is decent support at 92.70/80. EUR/AUD was another big mover yesterday, confirming yet again support levels near 1.4125 before rallying very sharply. The break and close above 1.1450 in AUD/NZD gives yet more strength to the argument that a base is in place and more gains are ahead.
Real money bids reported near .9600 and more expected directly below.
Picking the daily range will be the tricky part. I expect to see a downside test first, possibly as low as .9550 before stability returns and we could see the pair back near .9650 especially if AUD/JPY buyers return.
Let’s stick with the AUD/USD for today and trade the above mentioned .9550/.9650 range. I’d also consider buying the dip in AUD/JPY to 92.70/80 but be patient and wait for an hourly base to form before committing. Also keep a close watch on the 200-DMA in USD/JPY which is important technical support near 97.25.
