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USD strength and FIbonacci resistance capped the Aussie dollar's run higher overnight

Market Analysis /
Greg McKenna / 15 May 2018

I could try to fit a fundamental narrative to the Aussie dollar's move over the past 24 hours. But the reality is that what was clear for the second trading day in a row is that the sellers were sitting at the 38.2% retracement level of the recent sell-off. 

Clearly, they view this as a reasonable place to either take profits on longs or to sell short anew. 

Either way the wash-up is that after rising to high in the mid 0.7560's again yesterday the Aussie is back this morning at 0.7528. And what's important here is that the resistance level was too solid.

So, even though we know that some part of the reversal last night was about the US dollar’s recovery it’s also interesting that Aussie and copper sold off together as well. And of course, the Kiwi got crushed.

To me, that reinforces the discussion I had in this note yesterday - and at longer length in Markets Morning - about the relative moves of the big spec positioning as shown in the CFTC data released Friday night. It does seem to me the bears are coming harder for the Aussie dollar than they are for some of the other majors.

Retail sales in the US are still the key in the very short term and a result below the market's expectation of 0.3% for April could see it under pressure and the Aussie dollar on the march once more. Likewise strong Chinese data today when we get the release the Triple Treat of retail sales, industrial production, and urban investment could put a bid under the Aussie as well. 

But, based on the price action this 0.7565/70 region is going to be the key to whether or not the Aussie can truly lift. 

Against this backdrop, while it would be a surprise if the contents of the minutes from the last RBA meeting were a surprise there is clear room for downward pressure on the AUDUSD if the minutes reflect a discussion about the outlook for housing and households and how long the RBA will be on hold for.

Resistance is at 0.7565/70 and support is at 0.7505/6 then 0.7489. 

Here's the 4 hour chart for today. Trend broken, downside bias. We'll see. 

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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