Regular readers will know all about the thing I call the McKenna Mantra.
That is, I always say in my video and write here in this space and in my Markets Morning daily note that I believe in respecting levels unless, or until, they break.
It's why I highlighted that confluence of technical resistance last week - though it is fair to say I did think we might break above 77 cents before the Aussie pulled up.
I raise this today because after failing below 77 cents last week the Aussie is now back at 0.7462 after the Euro was pole axed overnight. That's just a little more than half a cent above the low around 0.7411 back in early May.
And being back near that low, as the Euro is sitting at1.1561, the chance of a break has increased materially given that the Fed has stood itself apart from other central banks like the RBA and ECB given the diverging outlook for the United States economy and thus US monetary policy.
So I'm going to respect these lows in the Aussie and Euro - unless, or until they break.
But the chances of a break for the Aussie dollar seem to be growing given the policy and investment opportunity divergence between the US, Australia, and other investment destinations. Equally, the backdrop where Chinese data undershoots - as it did again yesterday - which has driven the CESI for China down to -53.7 from +48 at the beginning of May is not positive for the AUDUSD.
So unless the USD falls out of bed for some reason - like the reignition of the Chinese trade war which could happen as soon as tonight, the Aussie seems biased lower.
A break of 74 cents opens the way into the 0.7125/50 region as a simple 138.2% Fibonacci extension now that the Aussie respected the 38.2% retracement level of the recent fall with the high of last week's rally.
But when you look further at this weekly chart I have to wonder if the Aussie isn't really just in a big old 68.50-81.50 cent range against the US dollar. If that is the case then if 0.7125/50 doesn't hold AUDUSD will be biased under 70 cents.
I'm a big USD bull. So I'm starting to lean that way. But let's see how 74 cents, the mid 71's holds first. And let's keep an eye on the performance of mining shares relative to the global index. That's holding in at the moment. So clearly investors aren't abandoning their positive outlook on the global economy yet.
Have a great day's trading.
Chief Market Strategist
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