Update on potential trade ideas

I looked at short trades on the AUD/USD at $0.7796 on 2 March and still like holding a short bias. 

Source: Bloomberg

The trade idea has moved back into the money, but seems to finding some support in the $0.7750 area. Stops on the idea could now be moved to around $0.7880 (from $0.7920), just above the September downtrend and top Bollinger band.

China’s new economic targets have clearly not helped sentiment towards the AUD, while spot iron ore has fallen below $60.00 per tonne overnight. Interestingly, the Linyi city government has requested certain steel mills in the eastern Shandong province to suspend production, with talk that annual output in Linyi could reach as much as 10 million tonnes and the oversupply issue is still working its way into Australia’s key export commodity. Fundamentally the AUD still needs to adjust to the falling terms of trade, what’s more there seems to be downside risks to China’s growth targets for 2015.

On the USD side of the equation, all eyes fall on the upcoming US payrolls report at 00:30 (AEDT) and specifically whether we see an improvement in earnings growth (expected to grow 2.1% yoy) and the so-called U6 unemployment rate (currently 11.3%). The headline number around job creation is expected to be 235,000 (economist range is 370,000 to 150,000 jobs created).

Once again the bond market holds the key and for AUD/USD to head towards the 3 February low of $0.7626; the premium the Australian two-year treasury holds over US treasuries will need to fall from 1.27%.

A weak jobs report will naturally push the pair higher and obviously pose a risk to the trade. However, a strong report (wages hold the key) and expectations will solidify that we see the Federal Reserve remove its ‘patience’ language in the 18 March FOMC meeting and should benefit the idea.


My long USD/CAD trade idea has been frustrating, with some fairly good data out of Canada keeping the CAD firm.

Position sizing is still small as the technical set-up needs to turn more bullish and the triangle pattern on the daily chart still need to play out. The fact the 20-day moving average is headed perfectly sideways potentially suggests playing a range of $1.2597 to $1.2392 for now.

Keep an eye on EUR/CAD as the daily chart is looking fairly bearish, although sizeable indecision is creeping into the pair (as seen by the large doji pattern).

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