AUD/USD Near a Top

AUD/USD Near a Top

AUD/USD Near a Top

Fundamentally AUD/USD has no business trading as strongly as it has. China devalued its currency, their trade balance shrank to its lowest level since the Lunar New Year and exports are down sharply. The strong AUD is a big problem for Australia’s economy is likely to drive future economic activity lower. Meanwhile stronger inflation and healthier consumer spending numbers from the U.S. should keep the U.S. dollar bid. Next week’s RBA minutes could be optimistic and employment numbers should be strong but Chinese GDP, industrial production and Retail Sales should be weak. The only explanation for the currency’s strength is carry and we don’t think that’s enough of a story especially with stocks poised for a deeper correction. We like selling AUD/USD between 0.7650 and 0.7700.

Technically, AUD/USD has broken above the 20 and 50-day SMAs, which is a sign of strength for the currency but we believe the gains should be capped at 77 cents, an area where the currency pair found resistance at on multiple occasions in August and September. A reversal should take AUD/USD back down to 0.7550 and possibly even lower.

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