Currency Updates:
It will be all eyes on the RBA today, with the market universally expecting a rate cut at 2:30 this afternoon. The fact that an election was called at the weekend could put a fly in that ointment, as the RBA has never adjusted interest rates during an election campaign and will have to break with history to do so today. The speculative AUD market is sitting at close to record short levels and with a rate cut priced into the market, the main danger as I see it is that we get a short-covering rally of sorts? Big or small- that depends on the decision and statement.
TECHNICALS: Initial resistance levels are strong between .8990/.9010 (see chart) and that should cap rallies pre-RBA. Support levels start at .8880 through .8850. Medium-term bears can feel relatively comfortable whilst prices stay below .9050 but a break back above there will threaten the down-trend momentum. Longer-term technical support levels start at .8770.
CROSSES: AUD/NZD was very volatile yesterday on the Fonterra milk contamination news but has now settled down. The big levels are at 1.12/1.15 and further range trading between these two levels is now expected (but again watch for large stops 50 pips through either of these). EUR/AUD had a brief peek at 1.50 yesterday which was immediately rejected and a deeper retracement towards 1.4700 is certainly possible. AUD/JPY still looks heavy and only a break back above 89.50 will alleviate the downside pressure.
ORDERS & FLOWS: Very heavy trailing stops are now reported above .9050 and if they go off in volatile trading conditions, we could see some big moves. AUD/NZD sell orders are very solid between 1.1500/50 but again there are large stops above this level.
INTRADAY CONCLUSION: I always think it’s best to wait until after the big risk event before trading, rather than guessing which way the market will go. See how the market reacts and then make a trading decision; if resistance at .9000 seems to be holding, then you can try selling with stops above .9050. The downside is a bit trickier given the strong downtrend, so if short-term support levels cannot hold, bulls should wait for levels closer to .8770.
TRADE OF THE DAY: Most of today’s volatility will be in the AUD/USD but it looks too risky to me, so I will stick with USD/JPY which has been good to me recently. Play the edges of a 97.80/98.80 range and I’m sticking with my bearish bias. The 1.12/1.15 range trade in AUD/NZD also looks like a good risk-reward play, so play those edges also with a bearish bias.
