Paring back USD longs

AUD/USD is looking much more constructive and is clearly basing after a strong move lower from late 2014.

Source: Bloomberg

Australian data this week will centre on Australian home loan data (expected to increase 1.7%) and employment data on Thursday (consensus is looking for 5,000 net jobs to be created). Chinese data will also be in focus, with trade numbers due on Tuesday and financing numbers also out, although there is no set date.

The key driver though is the USD and there is a real possibility after Friday’s poor wage growth data that the market pares back USD longs. With wages falling 0.2% on the month, there really is no reason why the Federal Reserve would raise the funds rate anytime soon and narrative from a host of Fed speakers on Friday stated exactly that.

Naturally, in this environment we saw two-year yields fall fairly aggressively and high yielding currencies benefitted. Technically, the AUD/USD is looking to break the 31 December high of $0.8215, which is just below Kijun-San line on the ichimoku cloud at $0.8231. The pair has broken above the 20-day moving average as shown on the daily chart and a close above $0.8231 would be positive.

If this break materialises, I would expect a further squeeze to $0.8324 (the 38.2% retracement of the November to January sell-off) and it’s from here that I would look to initiate short positions. If filled, I would look to attach a stop loss at $0.8420, just above the 50% retracement of the aforementioned move.


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