Australian Dollar Talking Points
AUD/USD fills the gap from earlier this week as updates to Australia’s Gross Domestic Product (GDP) report instills a weakened outlook for the region, and recent price action raises the risk for a further depreciation as the exchange rate carves a series of lower highs & lows.
AUD/USD Carves Bearish Series, RSI Threatens Upward Trend
Signs of a slower growth is likely to keep the Reserve Bank of Australia (RBA) on the sidelines at the first 2019 meeting on February 4 as ‘the low level of interest rates is continuing to support the Australian economy,’ and the central bank may continue to endorse a wait-and-see approach over the coming months as ‘growth in household income remains low, debt levels are high and some asset prices have declined.’
Even though the U.S. and China agree on a 90-day truce, the ongoing shift in trade policy may continue to dampen the economic outlook for the Asia/Pacific region the RBA sees ‘signs of a slowdown in global trade.’ In turn, Governor Philip Lowe & Co. appears to be on track to support the real economy throughout 2019, and it seems as though the central bank is also bracing for a further depreciation in the aussie-dollar exchange rate as ‘there has also been a broad-based appreciation of the US dollar this year.’
In turn, AUD/USD may continue to chip away at the advance from the 2018-low (0.7021) as the Federal Reserve is widely expected to deliver a 25bp rate-hike next month, but the recent pickup in volatility appears to be spurring a round of profit-taking amid the drop in retail interest.
The IG Client Sentiment Report shows 60.3% of traders are now net-long AUD/USD compared to 54.3% last week, with the ratio of traders long to short at 1.52 to 1. However, the number of traders net-long is 23.5% higher than yesterday and 5.4% lower from last week, while the number of traders net-short is 31.5% lower than yesterday and 17.0% lower from last week.
Waning participation may foster range-bound conditions as market participants eagerly wait for the Federal Open Market Committee (FOMC) interest rate decision on December 19, but the growing skew in retail position offers a contrarian view to crowd sentiment especially as both price and the Relative Strength Index (RSI) start to threaten the bullish formations carried over from October. Sign up and join DailyFX Currency Analyst David Song LIVE for an opportunity to discuss potential trade setups.
AUD/USD Daily Chart
- Keep in mind, the break of the September-high (0.7315) instills a constructive outlook for AUD/USD, but the advance from the 2018-low (0.7021) appears to sputtering ahead of the 0.7400 (38.2% expansion) handle as both price and the Relative Strength Index (RSI) threaten the upward trends carried over from October.
- With that said, lack of momentum to hold above the 0.7320 (50% expansion) to 0.7340 (61.8% retracement) region brings 0.7230 (61.8% retracement) on the radar, with the next downside region of interest coming in around 0.7170 (23.6% expansion) to 0.7180 (61.8% retracement).
- Next downside hurdle comes in around 0.7090 (78.6% retracement) to 0.7110 (78.6% retracement) followed by 0.7020 (50% expansion), which lines up with the 2018-low (0.7021).
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— Written by David Song, Currency Analyst
Follow me on Twitter at @DavidJSong.
Traders Net-Short Are 63.3% Higher from Last Week
TRADERS REMAIN NET-SHORT
US 500: Retail trader data shows 24.6% of traders are net-long with the ratio of traders short to long at 3.07 to 1. In fact, traders have remained net-short since Jan 07 when US 500 traded near 2473.53; price has moved 11.9% higher since then. The number of traders net-long is 1.7% higher than yesterday and 1.6% lower from last week, while the number of traders net-short is 5.2% higher than yesterday and 63.3% higher from last week.
For more in-depth analysis, check out the Q1 2019 Forecast for Equities
S&P 500 SUGGESTS STRONG BULLISH BIAS
We typically take a contrarian view to crowd sentiment, and the fact traders are net-short suggests US 500 prices may continue to rise. Traders are further net-short than yesterday and last week, and the combination of current sentiment and recent changes gives us a stronger US 500-bullish contrarian trading bias.
— Written by Nancy Pakbaz, CFA, DailyFX Research
Follow Nancy on Twitter @NancyPakbazFX
On to the Next Big Levels of Resistance
S&P 500/Dow Jones/Nasdaq 100 Technical Highlights:
- S&P 500 nearing 2800-area, several swing-highs from last year
- Dow Jones 26k-ish stands between it and record highs
- Nasdaq 100 trading around resistance already
Check out the forecasts for Global Stock Indices and other markets on the Trading Guides page.
S&P 500 nearing 2800-area, several swing-highs from last year
The S&P 500 is continuing to show impressive strength since its v-bottom began the day after Christmas, with it having a few points along the way where it could have been stopped in its tracks. But it wasn’t, and this has levels prior to the December swoon in view. The area surrounding 2800 is a big one.
From 2800 up to 2817 there were three peaks created from failed rallies, a logical area, with the rally having come this far, to look for stocks to weaken from. Watching price action will be key, as always, but especially around the levels just ahead.
While resistance looks likely to get tested soon, the upward channel structure over the past month will keep stocks pointed higher for as long as it holds. If the S&P is rejected off resistance, to further bolster the notion of a sizable retracement we’ll need to see the underside parallel undermined.
For now, the top-side must be respected, but the time for material weakness may be nearing…
Stocks are rallying, but will it last in the long-term? Find out where our analysts see stocks headed in the Global Equities Forecast.
S&P 500 Daily Chart (2800/817 big spot)
Dow Jones 26k-ish stands between it and record highs
The Dow is nearing the 26k-area, a spot which is basically the equivalent of what 2800 is to the S&P 500. The zone runs up to near 26300. The focus is primarily on the S&P right now as it is the broader index, but depending on how price action plays out, the Dow may be the better index to short at some point if it shows relative weakness to the broader market.
Dow Daily Chart (26k-ish stands in the way)
Nasdaq 100 trading around resistance already
The Nasdaq 100 continues to lag behind, which is something to continue monitor given it was the bull-market leader with its leading group of stocks – FAANG – dominating price action and sentiment. The NDX is trading around the 200-day and near late-year swing highs equivalent to the ones discussed with regard to the S&P 500 and Dow. So far, relative weakness is making the 100 the preferred fade if the S&P finds material selling off resistance surrounding 2800/17.
Nasdaq 100 Daily Chart (trading around resistance)
To learn more about U.S. indices, check out “The Difference between Dow, Nasdaq, and S&P 500: Major Facts & Opportunities.” You can join me every Wednesday at 10 GMT for live analysis on equity indices and commodities, and for the remaining roster of live events, check out the webinar calendar.
Tools for Forex & CFD Traders
Whether you are a beginning or experienced trader, DailyFX has several resources available to help you; indicator for tracking trader sentiment, quarterly trading forecasts, analytical and educational webinars held daily, trading guides to help you improve trading performance, and one specifically for those who are new to forex.
—Written by Paul Robinson, Market Analyst
You can follow Paul on Twitter at @PaulRobinsonFX
Aussie Dollar Falls on RBA Minutes, US-China Trade Talks Eyed
TALKING POINTS – AUSSIE DOLLAR, RBA MINUTES, ZEW, TRADE WARS, CHINA
- Aussie Dollar, commodity bloc FX down on downbeat RBA meeting minutes
- Germany’s ZEW survey may compound worries about slowing global growth
- Trade wars in focus on US-China negotiations, fears of US auto tariff hike
The sentiment-linked Australian, Canadian and New Zealand Dollars weakened in otherwise quiet Asia Pacific trade. The move appeared to be inspired by an ominous tone in minutes from February’s RBA policy meeting. Meanwhile, the US Dollar corrected gently higher.
RBA officials cited “significant uncertainties”, noting that trade tensions and cooling domestic demand have increased negative knock-on risks from China. They added that consumption may fall if domestic house prices fall much further. They suffered the worst drop since 1983 in the three months through January.
TRADE WAR DEVELOPMENTS, GERMAN ZEW DATA MENACE MARKETS
Looking ahead, Germany’s ZEW survey of analyst sentiment may compound the downbeat mood, especially if it echoes the disappointing trend in regional data outcomes since September. A small improvement in the forward-looking Expectations index is nevertheless expected to keep it within a hair of six-year lows.
The tone of US-China trade negotiations may also be formative as a delegation from Beijing arrives in the US for continued talks. Both sides painted a rosy picture earlier in the week, but the Trump administration may be preparing a spoiler as the President ponders raising auto import tariffs.
What are we trading? See the DailyFX team’s top trade ideas for 2019 and find out!
ASIA PACIFIC TRADING SESSION
EUROPEAN TRADING SESSION
** All times listed in GMT. See the full economic calendar here.
FX TRADING RESOURCES
— Written by Ilya Spivak, Currency Strategist for DailyFX.com
To contact Ilya, use the comments section below or @IlyaSpivak on Twitter
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