Wednesday, November 14, 2012

Is Australian Dollar Breaking Down?

I have been watching AUD/USD with big skepticism. On one hand AUD is benefiting from higher rates (compared to many other currencies), but most of the fundamentals are now stacked up against it. Australian economic growth is slowing, there is a real estate bubble in the country, resources boom is in early stages of peaking, and China has not exactly been a help lately. Speaking of China, I am a firm believer that new Politburo inauguration today is a sole reason for its latest improved economic numbers. How can China have 11.6% YoY export growth, when most of its biggest customers are hurting? Eurozone is sliding deeper into recession, Japan just entered another recession, and fiscal cliff in U.S. keeps most orders on hold. Anyway, we will never know what really goes on in that Communist-controlled country, but Australian economy greatly depends on it.

Let's look at some charts that are quite puzzling. FXI and Shanghai Composite are not exactly in sync. Copper and AUD/USD are not in sync at all. This does not make sense... Or does it? Could there be a quick resolution of divergence on the way?
AUD/USD may finally be ready to buckle under increasing risk-off pressure. It is in early process of breaking down. Price is now below the trend line, mid-range horizontal, and 4hr 200ema. 1.04 should now become the resistance, and successful backtest would trigger more short entries. I would use the bottom of the 440-pip trading range as a target.

click on charts to enlarge

No comments:

Post a Comment