There are lots of considerations for this pair but the key driver for its recovery was the last US-China tariff getting reduced from 25% to 10%. The market was obviously relieved hence the emerging markets (EM) respite – which in turn subsequently gave the AUDUSD strength.
I’d like to focus on the technical story because I’ve covered most of the macro narratives in previous views.
Sometimes it’s important to look at what the market tells you. I’ve previously highlighted a key level at .7140/60 and how we were very sticky around there. If you look at the WEEKLY chart it’s as clear as day.
AUD/USD weekly view
Source: Bloomberg
Note: Yellow line - 200 DAY, white line - 100 DAY simple moving average
We broke it and stayed below on the WEEKLY however we could STAY below. In fact three weeks later we bounced back. This is called a failure and when it happens you had better rethink your strategy. It took me four days but I’m glad I eventually stayed away. I tend to fall in like with market views, not in love. The bottom line is failures can hurt – they often mean brutal reversals. Just like here.
The counter to this is we are still respecting the downward trend channel. The DAILY trend channel currently comes in at .7340 and it’s getting lower each day. We are still below the key moving average (100DMA) and if we break 0.7140/60 again it is game on for bears.
So what’s my view? I’m a broad USD bull (just) so I’m happy to sell into any AUDUSD strength but if 0.7360 breaks I’ll get my coat.
AUD/USD daily view
Source: Bloomberg
About Patrick Reid
Patrick Reid co founded Adamis Principle to educate and mentor FX traders at all levels. He and co founder, Adam Gazzoli have both previously worked as spot traders with 30 years’ experience in hedge funds and banks.