Currency Updates:
The AUD has been remarkably quiet since the RBA rate decision yesterday but I think we are witnessing the calm before the storm. There are some big levels beckoning in all of the AUD crosses and once they break we will see heavy volumes hit the market. Add into the mix that it’s August, when liquidity is traditionally tight, and that positioning is at extreme levels already, and you have all the ingredients for some big moves.
TECHNICALS: Initial resistance levels are strong between .8990/.9010 (see chart) and again at .9030/35. A clean break above the latter will endanger the downtrend. If these resistance levels hold then the bears will generate fresh confidence and we should see a test of longer-term support levels near .8770.
CROSSES: AUD/JPY is the most interesting of the crosses at the moment with a potential double-bottom at 87.20 and strong resistance starting at 89.00 (see chart). I’d play close to the edges of this range and get your next medium-term bias from a break either side. AUD/NZD is also in range trading mode between 1.12/1.15 and selling exhaustive rallies looks like the safer play here. EUR/AUD has steadied again near 1.4800 and another test of 1.50 in coming days looks inevitable.
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. No confirmation at the moment, but I think it’s safe to expect heavy stops below 87.10 in AUD/JPY. .
INTRADAY CONCLUSION: You know my views by now, I think the AUD/USD is way oversold and due for a bounce but the trend remains bearish so we must wait for some bullish reversal signals. A break above .9050 would confirm such an event. Bears can feel reasonably confident selling near .9000 with tightish stops in the hope of further downside. AUD/JPY must also be watched very closely as much of the big flows come from there.
TRADE OF THE DAY: I think it will have to be a waiting game today and the pairs to watch are all interlinked; AUD/USD, USD/JPY and AUD/JPY. We need to watch the big levels mentioned above. Though I’m not a big fan of the break trade, I think a .9050 bullish break in AUD/USD could be significant; so buy that break with trailing a stop below .9000 targeting .9250.
