Last week, I was surprised but not too surprised by ECB rate cut happening. I thought the possibility might come up, but not so soon. However, the fact that it did happen gave me reason to re-look at the markets and here are my latest views on how this will affect AUD, both technical and fundamental.
Technicals
- Price started easing off towards the break of the uptrend channel lower trendline, at at time when market was all about non-tapering
- Last RBA rate review, RBA rate statement did not provide the push downwards I was expecting, but sellers started showing themselves in the region indicated by the orange circle as shown, indicating the resistance of the retest line was still holding although price still wanted to break free
- 1st blue retest line support finally broken, something I had been waiting for
Fundamentals
-ECB rate cut has set the stage for other central banks apart from FED to start lowering interest rates to protect/boost their own country economy
- RBA rate statement was hawkish, indicating they are still open to having a much weaker currency. It created a huge red candle but not strong enough to break the then minor upwards trend within trend
- Although FED has not started to taper the QE, they have started to show signs in the last FOMC statement that they are slightly more optimistic about the future of the economy, by omitting some negative statements that in previous FOMC statements (Source : http://www.investing.com/news/forex-news/dollar-firms-up-vs.-rivals-after-fed-254553). The markets have clearly interpreted this as the FED looking to taper soon....If this happens, "Hot Money" will be retracted suddenly, and forcefully, and AUD will be one of the casualties
- RBA has maintained all the while that they think the AUD is still overvalued, this stance has not changed since before even the latest Australian Election
- Last week, from November 4th - 8th, datas coming out from Australia ie Retail Sales; Trade Balance, whose readings were better than expected, hardly rallied the AUDUSD, but a worse than previous reading of Employment Change caused the AUDUSD to erase earlier gains
- US has finally shown signs of putting into gear the start of Tapering, of which the inverse is what caused the AUDUSD to gap up in the first place, I believe the reason no longer existent which caused the rally of the AUDUSD
- Much better than forecast NFP data coming out crashed the AUDUSD, and will give reason to the FED to perhaps start their Tapering of QE soon
Conclusion
I believe the AUD USD will respect the latest downtrend Trend Within Trend, and there are plenty of fundamental reasons in favor of a cheaper AUDUSD, whilst technicals can speak for itself. I will be looking to sell the AUDUSD come Monday morning market open
