AUDUSD: FUTURE DIRECTION? BUY THE BREAKOUT; SELL THE TRIPLE TOP
Post RBA has left Aussie in a somewhat uncertain direction; whilst the 25bps cut last week should have seen us offered to at least the 0.74 low support level, instead weve seen persistent aussie bids, even despite the strong USD employment report and consequential increased rate hike odds.
Much of this Aussie topside is a function of investors shifting macro strategies from a monetary policy stance to a yield seeking/ rate differential positionings; further aussie downside was unhelped by the RBA's rate statement & SOMP which failed to offer any forward guidance regarding further policy, or hint at any FX levels which they thought were too high.
Despite this I have seen several sell-side houses offer particularly dovish outlooks for the RBA - with 2 or more rate cuts and potentially new unconventional methods being used by end of 2017.
My personal view is a mixed one. Whilst Aussie lower at these levels makes sense e.g. rate cut last week seemingly yet to be priced, we are at a double top resistance level that has held when the rate was 1.75 so should hold now the rate is lower. However, whilst this is the case in the immediate term aussie is still trading better bid, which is interesting given kiwi is trading with a slightly biased offered tone even though kiwi still has the better carry at 2.25% vs 1.5% - this could be a signal the market expects the RBNZ to be more aggressive in their policy decision on the 10th and/ or they will be more dovish and assertive with their forward guidance, which i agree is likely given the RBNZ has said several times it is not happy with kiwi at these levels and is likely to use policy tools to combat this. So on this note, if AUD$ holds the 0.768 level and fails to close on the daily above this (and shows 1/2 red dailies lower) this wiLl show the bias has confirmed to the downside and I will sell aussie to 0.750tp1 and 0.743tp2.
Alternatively, given aussies topside bias, and the factors mentioned above, it is highly possible that the bulls win and AUD$ breaks higher - if we see a daily close above the 0.768 highs this imo will likely confirm the breakout and my bias until 0.778 is bullish thus I will buy the break with a 0.775tp1 and 0.778tp2.
Today USD strength is firming as the fed funds rate implies a sept p=18% that the fed hikes up from 12% yesterday - though on the data side we are pretty quiet, with retail sales the only notable print which is on Friday. On the AUD side Gov Stevens from the RBA will be speaking later this week... hopefully he sets a bearish aussie tone and helps us move lower, but either way i think AUD$ is a solid trade.
The breakout will see alot of momentum imo as a high % of bears will have stops ust above the 0.768 level (given the double top resistance) so we would likely short squeeze those stops 30pips higher immediately once their level has broken. Further, a confirmed rejection at the 0.767 level should see the bears take over (as they have done in the past 2 times), hence my high conviction on this trade.
Much of this Aussie topside is a function of investors shifting macro strategies from a monetary policy stance to a yield seeking/ rate differential positionings; further aussie downside was unhelped by the RBA's rate statement & SOMP which failed to offer any forward guidance regarding further policy, or hint at any FX levels which they thought were too high.
Despite this I have seen several sell-side houses offer particularly dovish outlooks for the RBA - with 2 or more rate cuts and potentially new unconventional methods being used by end of 2017.
My personal view is a mixed one. Whilst Aussie lower at these levels makes sense e.g. rate cut last week seemingly yet to be priced, we are at a double top resistance level that has held when the rate was 1.75 so should hold now the rate is lower. However, whilst this is the case in the immediate term aussie is still trading better bid, which is interesting given kiwi is trading with a slightly biased offered tone even though kiwi still has the better carry at 2.25% vs 1.5% - this could be a signal the market expects the RBNZ to be more aggressive in their policy decision on the 10th and/ or they will be more dovish and assertive with their forward guidance, which i agree is likely given the RBNZ has said several times it is not happy with kiwi at these levels and is likely to use policy tools to combat this. So on this note, if AUD$ holds the 0.768 level and fails to close on the daily above this (and shows 1/2 red dailies lower) this wiLl show the bias has confirmed to the downside and I will sell aussie to 0.750tp1 and 0.743tp2.
Alternatively, given aussies topside bias, and the factors mentioned above, it is highly possible that the bulls win and AUD$ breaks higher - if we see a daily close above the 0.768 highs this imo will likely confirm the breakout and my bias until 0.778 is bullish thus I will buy the break with a 0.775tp1 and 0.778tp2.
Today USD strength is firming as the fed funds rate implies a sept p=18% that the fed hikes up from 12% yesterday - though on the data side we are pretty quiet, with retail sales the only notable print which is on Friday. On the AUD side Gov Stevens from the RBA will be speaking later this week... hopefully he sets a bearish aussie tone and helps us move lower, but either way i think AUD$ is a solid trade.
The breakout will see alot of momentum imo as a high % of bears will have stops ust above the 0.768 level (given the double top resistance) so we would likely short squeeze those stops 30pips higher immediately once their level has broken. Further, a confirmed rejection at the 0.767 level should see the bears take over (as they have done in the past 2 times), hence my high conviction on this trade.
1. On the volatility side we are seeing some neutral/ bearish interest - AUDUSD 0.7600 (AUD 225m) 0.7625 (260m), quite low volume but nonethless bearish/ neutral.. this makes sense as investors sits on the sidelines waiting for the break or the reversal to get involved.
2. The 25D RR are trading bullish at +1 vol which is interesting (calls are in higher demand than Puts), we see 1wks at -0.7 though which is interesting.. perhaps the market thinks the AU topside will fade. though the vol differential is low at -0.7 so any bearish conviction deduced from this is low.