UK based foreign currency expert, Patrick Reid discusses recent trends and expectations
AUD/USD – Broad bearish bias
I’m a little confused so please give me some slack. More on this later.
AUD/USD appears to have formed a base at .7330 and it doesn’t make sense. Weak housing, steady funding cost pressure, off balance books in China getting squeezed and a largely pristine macro picture from the US sets up for more selling - but apparently not. As with everything, appearances can be deceiving.
Macro has met Mr Market Positioning and the latter is winning. I spoke to a couple of spot traders on Wednesday and they agree. Carry as some desks say, is the proverbial king - if you believe foreign currency forwards two years from now.
If you ask me Carry is less king, more wannabe prince.
There’s no doubt about it, risks are firmly to the downside despite China being able to manage its current squeeze, Australia needs iron ore consumption to increase further. A note on the USD leg - I thought this was simple. Markets and positioning are most definitely not. So what next for the pair?
Consolidation at the lows, along with both the US and Australian macro snap shot still gives me a broad bearish bias. However, swaps and carry from three months all the way out to the all important two year are looking unusually positive. If we break .7500 I’ll turn the lights out - along with my tentative but still bleak picture.
Back to the confusion. Have we formed a solid base with no more to go? Or are we just pausing half way down the Mariana Trench?
I’ll let you decide.
Here’s a chart.
Source: Bloomberg, 31 March 2017 to 18 July 2018
Note: yellow line - 200 DAY, white line - 100 DAY simple moving average
GBP/AUD - Bear
Brexit fever may have calmed down a touch but Northern Ireland still remains the key to the rather rusty lock, both of which will decide the future price. The recent base AUD has formed shines a rather lovely light on this pair. A bit like Sydney harbour at 6am!
I’m a sucker for a head and shoulders (technical description of the graph) so GBP is looking like a weak forgotten relative at a rather odd marriage. 1.7995 is the line in the beautiful sunlit sand. If this cracks, it’s over for me but I doubt it.
A picture tells a thousand words but this tells me one. Bear.
GBP weaker against the AUD.