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Up the stairs, down the elevator for AUD

Four markets in focus today: AUD/USD, EUR/USD, Japan 225 Cash and Fortescue Metals Group.

AUD
Source: Bloomberg

AUD/USD

Glenn Stevens caused a stir yesterday by saying the AUD was ‘overvalued, and not by a few cents’. Clearly his comments were designed to limit the gains seen in the AUD at a time when traders were happy to buy the AUD due to the compelling yield on offer relative to other G10 currency nations. The RBA governor has thrown open the prospect of a rate cut later this year, with the RBA still keen to keep an eye on future inflation reads. Technically the pair has broken below the January uptrend and this could be very important for the bears. Short positions certainly look much more compelling at present and a move to the 200-day moving average at 0.9197 could be on the cards. I continue to like long GBP/AUD and my trade idea from June 18 is now up 200 pips. I am looking for a move to 1.8415 and feel moving stops on the idea to 1.8150 is warranted.

EUR/USD

Mario Draghi provided no new measures last night at the ECB meeting, in-line with market expectations, however the meeting was still very significant. Traders got to hear more finite details on the Targeted Long-Term Refinancing Operation (TLTRO); however the big development was that future ECB meetings will now shift to a six-week frequency for its central bank meetings (in-line with the FOMC), while the central bank will also provide minutes for the first time ever. EUR/USD failed at the 38.2% retracement of the May to June sell-off at 1.3690 on June 30 and this could be highly telling. Shorts are preferred.

Japan 225 Cash

Frustratingly, I was stopped out of my ‘one to watch’ last week with price moving 0.1 points below my stop. The Japanese index has since rallied 400 points, which is annoying but that is trading and the index could have easily fallen another 200 odd points. USD/JPY reacted positively to the US payrolls report overnight, although there wasn’t that much of a reaction in the US bond market. Traders will be watching for a break of the recent double top at 15,442/44, although it’s also worth looking at the downtrend drawn from the 1996 high (on the monthly chart).

Fortescue Metals (FMG)

Iron ore had a strong day yesterday, gaining 1.9%. The bulk commodity has now rallied 8.4% off the recent low and this is certainly positive for resource names. FMG is certainly looking in a better space of late, however if you look at the 20-day moving average it is tracking sideways, so we may see selling coming into the stock at the top Bollinger band at $4.76.

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