Australian Dollar Defies Commodities

The Australian dollar found strength when the Reserve Bank of Australia (RBA) monetary policy minutes confirmed that the central bank would not move on monetary policy again this year. Though the RBA believes that monetary policy needs to remain accommodative, markets have reacted positively to the decision to leave monetary policy as is. The $GBPAUD has since moved in a down channel on the back of Australian dollar strength. Last week, the weakness in commodities finally caught up with the Australian dollar. The Australian dollar finally weakened in the face of extended new, multi-year lows in commodities. After moving to the bottom of the channel, the $GBPAUD respected support at the lower trendline of the channel. Price rallied higher on the back of the weak Australian dollar. A rally in the $GBPAUD was expected to rally back to the trendline at the top of the down channel. Given the velocity of the moves in commodities, the $GBPAUD managed to return to the top of the channel in just one week of trading. While the $GBPAUD was met with profit-taking just ahead of the key 2.1200 resistance level, the new trading week opened with a move above resistance to 2.1216. However, sellers stepped in at the highs ultimately respecting the upper trendline resistance and moving price back to the key 2.0800 support level.

GBPAUD DAILY CHART

The top of the channel here has confluence with the key 2.1200 resistance level. For the $GBPAUD to continue to rally, the $GBPAUD needs a confirmed close above the 2.1200 level. Ahead of the channel bottom is first the major 2.0800, now turned, support level. There is also confluence with that support level at the 50% Fibonacci level of last week’s rally. The 2.0800 level remains the key level for direction. With no confirmation on the break above the 2.1200 level, the $GBPAUD actually opens the new trading week bearish even with a Friday close at the highs. The $GBPAUD continues to trade in this channel. As such, after reaching the top of the channel, the $GBPAUD is biased bearish based on the technical developments in price action. Price has already moved to 2.0818 finding support just above the 2.0800 support level. With commodities crashing again as they did this time last year, the Australian dollar should experience another tremendous selloff. However, $GBPAUD price action suggests further Australian dollar strength in the face of weak commodities.

Premium trade setups with targets and stops are published in the $GBPAUD Outlook for the Week (Volume 42, this week’s Quid Report).

Is This The Bottom?

Last week, I was on the air live with Dale Pinkert, host of FXStreet’s Live Analysis Room. My episode is down below. It’s always fun talking GBP with Dale because he always has insights to share with me as I do with him. His experience in futures on top of the forex always leads to a good conversation. The interview never feels like an interview. Just good trading talk between friends.

The interview took place the day before the September non-farm payrolls dropped. You’ll hear us talk equities quite a bit. With the weakness in the $SPX, I explain why the $GBPJPY was actually looking to fall further to 174.86 and possibly even as low as 167.99. But the weakness in the NFP report may change everything. Apparently, Yellen and the $FED did know something we all didn’t know. The recent global malaise in China, Syria and Brazil are, in fact, starting to show ripple effects in the U.S. economy. And if this economic weakness becomes a trend, interest rate hikes out of the Federal Reserve are off the table. Probably completely. Definitely for 2015. The lack of wage growth and the less-than-expected jobs growth has finally convinced markets that the $FED is not moving on interest rates. In fact, whispers of QE4 are back. Expect that drum to beat louder if the U.S. economy starts to show more weakness in the months ahead.

Looking at the $GBPJPY as our equities proxy, the Friday close above the 181.00 support level is a bullish signal in light of the strong close in the S&P 500. Watch here:

CHART OF THE WEEK: RBA WAGS BACK

The $GBPAUD daily chart posted this week is the clear winner.

I like the Reserve Bank of Australia (RBA). They have actually been neutral for weeks. It’s not their fault that their stance against any more accomdative easing this year fell on deaf ears. Blame commodities. Buyers have been fixated on commodity markets. As commodities, including copper and iron ore, crashed into bear markets, forex traders sold AUD in like manner. The $GBPAUD rallied over 20,000 pips. Since MAY. That’s an incredible bull rally, by an measure. Markets simply ignored the RBA. Until this week. Monetary policy action and the statement this week showed an adamant central bank in their stand to allow the interest rate cuts this year to do their work. The RBA even appreciates the weak AUD. It bolsters domestic demand in the face of slowing exports. So no complaints there. Unlike their counterparts in Switzerland, the RBA is happy to have traders do their dirty work. Smart.

The price action and close this week do serious technical damage to this chart right here.


GBPAUD DAILY CHART


This chart is an excerpt from this week’s issue of Quid Report. Subscribers receive my research on all major GBP pairs at the beginning of the week, including access to @faithmightfx on Twitter for daily, real-time updates to the weekly report. AVAILABLE NOW.

RBA Remains Neutral

Since consolidating in a triangle pattern back in March, the $GBPAUD has extended its break of the triangle pattern to stage a breakout rally to 2.1527. This breakout above the 2.000 resistance and major psychological level to highs took out the former highs on both the daily and weekly charts. The monthly chart must be studied for the potential of a continuation higher. Having broken above the large 50% Fibonacci level at 2.0720, this breakout rally now targets the 61.8% Fibonacci level at 2.2217. The break above the 50% Fibonacci level is a very bullish development for the $GBPAUD as it signals that price will continue to move higher. A break of the 61.8% Fibonacci signals a complete reversal. The rout in commodities has been a sore spot for the Australian dollar. Iron ore and copper, two of Australia’s largest exports, have suffered steep declines in price along with oil. Though the RBA did not move on monetary policy last month, they have stated that they were unlikely to ease monetary policy again this year despite its economy softening in the face of commodity weakness. Despite the RBA reducing calls for more easing, AUD selling has not abated. Copper, oil and gold have all opened the new trading week accelerating to new lows. If the RBA can stand firm with this more neutral sentiment in their interest rate announcement this week, the $GBPAUD may begin to turn lower.

GBPAUD DAILY CHART

The $GBPAUD completed its Fibonacci move from last week when it moved to new, multi-year highs at 2.1527. Despite the new, multi-year high in price, momentum is still diverging on the daily chart. This bearish divergence signals for another corrective price move lower in price. As the correction works price lower, momentum should find support at the 60.0 level. This level on the RSI has been a strong support for momentum during corrections in the $GBPAUD since breaking above the all-important 2.00, now turned, support level. With momentum currently out of overbought territory, price will have supportive buying momentum to move the $GBPAUD to new highs again. If momentum were to take out that support level on the RSI that would be a tentative signal that the $GBPAUD may be looking for a reversal. However, the bearish divergence alone is not enough to deter buyers. The $GBPAUD can still rally to new highs but if the RBA continues with more neutral sentiment after their interest rate announcement that could, in fact, trigger a selloff.


This is an excerpt from this week’s issue of QUID REPORT. Subscribers receive my research on all major GBP pairs at the beginning of the week, including access to @faithmightfx on Twitter for daily, real-time updates to the weekly report. AVAILABLE NOW.

CHART OF THE WEEK: THE OZ WAGS AT RBA

Despite the RBA reducing calls for more monetary easing, the $GBPAUD continues to march ever higher on the back of a weak Australian dollar. Quid Report readers are enjoying this pair. While it has exhibited great technical edge, its fundamental edge has developed nicely in recent months for the ultimate double whammy. Trade the currency pairs with a double whammy. This is one.


GBPAUD MONTHLY CHART


This chart is an excerpt from this week’s issue of Quid Report. Subscribers receive my research on all major GBP pairs at the beginning of the week, including access to @faithmightfx on Twitter for daily, real-time updates to the weekly report. AVAILABLE NOW.

CHART OF THE WEEK: IT GETS EASIER

Each week, I highlight a chart out of the Quid Report.

After highlighting the Australian dollar last week, the $GBPAUD continues to soar to new highs. This week, the move out of the Fibonacci levels on the correction lower has moved to new, multi-year highs yet again. Momentum is trying to do something about that bearish divergence as bulls are not to be dissuaded. Between a crashing Chinese stock market, a slowing Australian economy and weak commodities, the AUD just can’t get a reprieve from the selling. It is expected to remain weak too for as long as this fundamental trifecta remains a narrative in the market.


GBPAUD DAILY CHART


This chart is an excerpt from this week’s issue of Quid Report. Subscribers receive my research on all major GBP pairs at the beginning of the week, including access to @faithmightfx on Twitter for daily, real-time updates to the weekly report. AVAILABLE NOW.

The Easy Aussie Dollar

The release of the meeting minutes from the Reserve Bank of Australia (RBA) was met with AUD selling. The RBA maintained its dovish sentiment despite not making any changes to monetary policy at its last meeting. They, too, downgraded their economy. Even though the Australian labor market is still strong, households are laden with debt and are simply not spending money. While officials at the RBA expressed satisfaction with the effects of current monetary policy, they believe policy needs to remain accommodative. It is their assessment that the economy still requires a weak AUD trading at even lower levels. The minutes confirmed the dovish remarks from RBA Governor Stevens just the week prior. As a result, the $GBPAUD continues its rally to new, multi-year highs.

GBPAUD WEEKLY CHART

Momentum continues to build a bearish divergence with every new high. Last week was no exception. There still remains a bearish divergence that suggests the $GBPAUD is due for a correction. Despite the divergence in momentum, the $GBPAUD is in breakout mode. It has soared to new highs and continues to close above the important 2.00 support level. But the decreased buying momentum is glaring. The new highs at 2.0548 were accompanied by even more bullish momentum than last week’s new highs. That is a good sign for buyers this week. It suggests that fresh buyers are back in the market assured by the dovish RBA.

The $GBPAUD has maintained an orderly rally even with the dovish RBA. Momentum followed with building bullish momentum following the rally to new highs. Last week, however, the $GBPAUD established new highs on the daily chart with less momentum than at the previous high price. With diminishing buying momentum on these new highs and a bullish close, a breakout higher could produce a false break. If price is unable to hold above the 2.0344 lows with adequate buying demand, the buy zone at the Fibonacci levels will come into play.


This is an excerpt from this week’s issue of Quid Report. Subscribers receive my research on all major GBP pairs at the beginning of the week, including access to @faithmightfx on Twitter for daily, real-time updates to the weekly report. AVAILABLE NOW.

My Appearance on FXStreet’s Live Analysis #FXRoom

It was FOMC DAY in the #FXRoom yesterday. A big day for a big interview and Dale Pinkert (@forexstophunter) at FXStreet didn’t disappoint. We talked about the how the $FED may effect markets just a few hours later. I run through some chart art on the $GBPUSD, $EURGBP, $GBPJPY, $GBPAUD, and $GBPNZD. This is my 1st interview since launching Quid Report. So I basically talk through this week’s issue giving traders a sneak peek into my new project. Enjoy the video!

Will the RBA let the Aussie strengthen?

When the Reserve Bank of Australia (RBA) made no changes to monetary policy, the AUD managed to strengthen. In light of the recent strength, the RBA has taken to jawboning to weaken the Australian dollar. RBA Governor Stevens released comments as the new trading week opened that sent the AUD lower. Despite the strong jobs report last week and heating housing market in Australia, the RBA still has interest rate cuts on the table for future monetary policy adjustments. In fact, the RBA feels like the AUD can stand to move lower still. These remarks have already sent the AUD lower across the board in early trading.

Since the rally to 2.0027, the $GBPAUD has been on a corrective move lower. This move lower has allowed the overbought momentum that took the $GBPAUD to those multi-year highs to work lower. While still firmly planted in bullish territory on the RSI, momentum is at more reasonable levels. Momentum suggests that a rally higher is still a strong possibility as the RBA sets out to weaken the AUD. Additionally, since the break above the large 38.2% Fibonacci level at 1.9188, price has not managed to close below that level. Even on the decline to 1.8827, the $GBPAUD still closed that month back above the big 38.2% Fibonacci level. Just as hawkish fundamentals were set to push the $GBPAUD lower, the RBA has stepped in to keep the doves in place.

GBPAUD DAILY CHART

After price moved to 1.8827, the $GBPAUD made a failed high right at the 1.9650 resistance level. This failed high is supposed to result in a new low below the 1.8827 low, presumably into the 50% Fibonacci level at 1.8612. But this move lower is a tough go. The market has been unwilling to move lower despite the failed high and strong economic data out of Australia. In fact, price is putting in higher lows on the daily chart. This was not the action expected after a failed Fibonacci move and robust economic data. However, it is now clear that the RBA must be intervening in the currency markets to keep the AUD weak. Now that the RBA has made it very clear that they intend to keep monetary policy accommodative to achieve a weaker AUD, the market has started to move now in accordance.


This is an excerpt from this week’s issue of Quid Report. Subscribers receive my research on all major GBP pairs at the beginning of the week, including access to @faithmightfx on Twitter for daily, real-time calls and adjustments to the weekly report. AVAILABLE NOW.

QUID REPORT – NOW AVAILABLE

QUID REPORT

Election jitters played out in trading last week as the GBP weakened across the board. Economists and financial media took to extreme headlines about sterling volatility spiking due to the uncertainty surrounding this particular general election cycle. The GBP did slide but election jitters did not take the GBP under siege. Rather, the Bank of England (BoE) hold on monetary policy last week gave the GBP a bit of reprieve from the election selling. Without a statement from the BoE after its policy announcement, the market is left to trade on its own expectations for a series of interest rate increases out of Great Britain to begin in early 2016. However, in the past few weeks, BoE members have taken to jawboning to temper those hawkish expectations.

In addition to hawkish expectations and election jitters, trading this month is already fraught with seasonality themes….

Read the full report: Quid Report, Volume 7 (subscribers only).