75 or 76 cents - which side of the range will break this week

Market Analysis /
Greg McKenna / 28 May 2018

Sometimes the Aussie dollar is not the main game.

I know that may sound trite, I know it may also sound a bit silly given the Aussie is only the 4th or 5th most traded currency on the planet. 

But in opening with that statement this morning I want to highlight why sometimes the AUDUSD can get stuck in a bit of a range while other pairs are moving sharply and aggressively. 

It's clear right now that the main games for forex traders are the USD rally, economic and policy divergence, the Italian - perhaps Spanish - political turmoil, the mess Theresa May's government is making of Brexit, EM markets - especially those with current account deficits and high borrowing in US dollars, the North Korean summit, and then maybe everything else. 

On that metric then it's clear the Aussie is not the main game and it highlights why the Aussie has mapped out a range of around 80 points in the past week after last Monday's rally. 

Where to next is an interesting question I'm thinking about this morning.

Ordinarily, the news the Korean summit is back on would be good for risk. And that seems to be the initial reaction in forex markets this morning with the Euro and USDJPY higher. But, even though the Aussie has rallied a little this morning from Friday night's close to be at 0.7558 it has lagged those other moves. 

It's just not the main game. 

And in a week where the US and UK are out tonight and where there is virtually no decent domestic data other than CapEx on Thursday, the range trading could continue. 

Or, as is more likely the case, the key drivers of the Aussie dollar will come from offshore this week. 

How this Italian mess effects the Euro and thus the US dollar and risk appetite will be crucial for AUDUSD trade. As will the rout in crude if it spills over into other commodity markets. 

We'll just have to wait and see. 

But to the question I posed myself in today's title to this note, the balance seems to be neither right now. 

I say that because of where I opened this note. It's not about the Aussie dollar right now. It's minding the fort while the battle is joined elsewhere in forex markets. 

So, to the charts then as a guide. 

My brief takeaway is that the long weekly uptrend from the 2016 lows broke 5 weeks ago. Last week's rally to 0.7605 was just 25 points shy of a proper retest of that break. That the bears chased the AUDUSD lower again is significant. 

It means that currently AUDUSD is in both a weekly and daily downtrend. 

And on Friday night the 4-hour uptrend from the early May lows was broken which again shifts the bias downwards. 

So on the day 0.7542 and 0.7589 look like the levels to watch with a move either side opening up a further small move to test the range limits. A break of either side (0.7522 - 0.7605/10) would suggest the next move has begun. 

Here's the weekly AUD chart for context. 

Click on me, I'll expand
Click on me, I'll expand

Have a great day's trading.

Greg McKenna

Chief Market Strategist


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