Hi guys,
In effect, this is an extension of my aussie trade posted pre-Trump (26th October 2016) in which we bagged 500 pips.
AUDUSD has seen rapid recovery off the back of both dollar weakness (mainly due to lack of details of the US administration's economic plans) and rapidly rising commodity prices, in particular iron ore (/it has rallied 10% recently, mainly based on speculation).
At present, the commodity currencies are more overvalued than any of their G10 counterparts at 15% in TWI terms, almost as much as they were a couple of years ago before they corrected substantially lower due to weaker commodity prices and rate cuts from the central banks (RBA in this case). Long term FX valuations point to AUD/USD fair value at 0.70.
RBA have sounded more optimistic on growth recently but $MS and others expect a slowdown in the housing sector, which could trigger an RBA cut. It is likely that the RBA wants to limit AUD upside in the n/t and is ready to soft its tone in case the FX rate appreciates excessively. Moreover, as the market could well price in more aggressive action by the Fed, relative mon pols support USD against AUD in coming months.
Iron ore futures need a reality check, which is my main reason for taking this trade (as well as favourable price action, esp on the weekly charts). RBA expects additional iron ore output from Brazil, as well as potential return of some output in China, to weigh on iron ore prices in the near term and doesn't see iron ore sticking around $90/metric ton. One could argue for days about whether iron ore prices should have rallied etc but one thing is for sure (as sure as you can be in this game!): iron ore prices need a correction. I see propensity for a correction down to as low as $80.
Looking at price action, upward momentum seems to be waning (bearish RSI div + 2 weekly dojis). A correction towards the 50% retracement of the Nov-Dec 2016 move seems likely, in my view.
GL all!
In effect, this is an extension of my aussie trade posted pre-Trump (26th October 2016) in which we bagged 500 pips.
AUDUSD has seen rapid recovery off the back of both dollar weakness (mainly due to lack of details of the US administration's economic plans) and rapidly rising commodity prices, in particular iron ore (/it has rallied 10% recently, mainly based on speculation).
At present, the commodity currencies are more overvalued than any of their G10 counterparts at 15% in TWI terms, almost as much as they were a couple of years ago before they corrected substantially lower due to weaker commodity prices and rate cuts from the central banks (RBA in this case). Long term FX valuations point to AUD/USD fair value at 0.70.
RBA have sounded more optimistic on growth recently but $MS and others expect a slowdown in the housing sector, which could trigger an RBA cut. It is likely that the RBA wants to limit AUD upside in the n/t and is ready to soft its tone in case the FX rate appreciates excessively. Moreover, as the market could well price in more aggressive action by the Fed, relative mon pols support USD against AUD in coming months.
Iron ore futures need a reality check, which is my main reason for taking this trade (as well as favourable price action, esp on the weekly charts). RBA expects additional iron ore output from Brazil, as well as potential return of some output in China, to weigh on iron ore prices in the near term and doesn't see iron ore sticking around $90/metric ton. One could argue for days about whether iron ore prices should have rallied etc but one thing is for sure (as sure as you can be in this game!): iron ore prices need a correction. I see propensity for a correction down to as low as $80.
Looking at price action, upward momentum seems to be waning (bearish RSI div + 2 weekly dojis). A correction towards the 50% retracement of the Nov-Dec 2016 move seems likely, in my view.
GL all!
Comment:
aaaaaand we're loaded, let's see how this goes :)
Comment:
Halfway there guys and girls, well played - set stops to b/e and let this one roll
Comment:
Hard to argue with 1.4% down on the day on an FX pair - crazy beta today on the Antipodeans. Keep your eyes on the US10Y (60d rolling beta of AUD and NZD to US10 shows that sensitivity to the Aussie-UST yield spread is rising) and your favourite commodity ETF. If we have a convincing break of 2.5% yield on a UST 10Y and a sustained downwards move in commodity prices (in particular iron ore, as stated above), I see propensity for a sharper move than shown here. I will be taking half off the position off the table at the t/p and allowing the rest to run "risk-free" as my stops are at break-even. I will update you all if the landscape changes but currently, things aren't looking good for the Aussie.
Comment:
Ok, so we have a slight conundrum this week: the dollar took a hammering on Friday, even after very hawkish rhetoric from a renowned dove (Yellen). This does not bode well in the m/t, in my view, and looking at price action, 99 could potentially be the next target for /dx (www.tradingview.com/x/xwuUZrj8/).
Looking at the commodity ETFs, upward momentum seems to be waning and price looks ready to rollover, which would hamper AUDUSD.
Two counteracting forces occurring on this pair; if you wish to play it safe and cash in, it wouldn't be a bad idea to given that we're already up 100 pips and it's always good to be conservative in this game. I will monitor the situation closely over the coming days/weeks and update you if things change for those holding.
Looking at the commodity ETFs, upward momentum seems to be waning and price looks ready to rollover, which would hamper AUDUSD.
Two counteracting forces occurring on this pair; if you wish to play it safe and cash in, it wouldn't be a bad idea to given that we're already up 100 pips and it's always good to be conservative in this game. I will monitor the situation closely over the coming days/weeks and update you if things change for those holding.
Trade closed: target reached:
Well played those who held :)
