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AUD/USD Holds Bullish Series Ahead of RBA Statement on Monetary Policy

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Australian Dollar Talking Points

The recent advance in AUD/USD seems to have stalled ahead of the September-high (0.7315) as the Federal Reserve appears to be on track to further normalize monetary policy, but recent price action keeps the topside targets on the radar as the exchange rate preserves the string of higher highs & lows from earlier this week.

Image of daily change for major currencies

AUD/USD Holds Bullish Series Ahead of RBA Statement on Monetary Policy

Image of daily change for audusd rate

AUD/USD pullback from the weekly-high (0.7303) even as the Federal Open Market Committee (FOMC) keeps the benchmark interest rate on hold as the central bank ‘expects that further gradual increases in the target range for the federal funds rate will be consistent with sustained expansion of economic activity, strong labor market conditions, and inflation near the Committee’s symmetric 2 percent objective over the medium term.

Image of Fed Fund Futures

The comments suggest the Fed will continue to pursue its hiking-cycle as ‘economic activity has been rising at a strong rate,’ and Fed Fund Futures may continue to reflect expectations for a 25bp rate-hike at the last meeting for 2018 as ‘risks to the economic outlook appear roughly balanced.

The hawkish forward-guidance for monetary policy may continue to produce headwinds for AUD/USD as Chairman Jerome Powell & Co. show no interest in abandoning the hiking-cycle, and the diverging paths casts a long-term bearish outlook for aussie-dollar as the official cash rate (OCR) in Australia sits at a record-low.

In turn, the Reserve Bank of Australia’s (RBA) quarter Statement on Monetary Policy (SMP) may do little to prop up the local currency as the Governor Philp Lowe & Co. retain a wait-and-see approach, but the recent pickup in volatility has spurred a material shift in retail sentiment as traders now appear to be fading the recent strength in AUD/USD.

Image of IG client sentiment for audusd rate

The IG Client Sentiment Report now shows 50.6% of traders are net-long AUD/USD versus 70.5% during the previous week, with the ratio of traders long to short at 1.03 to 1. The number of traders net-long is 2.0% lower than yesterday and 18.2% lower from last week, while the number of traders net-short is 10.8% higher than yesterday and a stunning 45.8% higher from last week.

The sharp jump in net-short interest warrants attention as the recent rebound in AUD/USD appears to have stalled ahead of the September-high (0.7315), but a further accumulation in net-short interest may ultimately provide a contrarian view to crowd sentiment as the exchange rate starts to threaten the downward trend from earlier this year. Sign up and join DailyFX Currency Analyst David Song LIVE for an opportunity to discuss potential trade setups.

AUD/USD Daily Chart

Image of audusd daily chart

  • Recent series of higher highs & lows raises the risk for a larger correction in AUD/USD especially as the exchange rate comes up against trendline resistance, with the Relative Strength Index (RSI) highlighting a constructive outlook as the oscillator extends the bullish formation carried over from the previous month.
  • In turn, the Fibonacci overlap around 0.7320 (50% expansion) to 0.7340 (61.8% retracement) sits on the radar followed by the 0.7400 (38.2% expansion) handle.
  • However, lack of momentum to test the September-high (0.7315) may spur a move back towards the 0.7170 (23.6% expansion) to 0.7180 (61.8% retracement) region, with the next region of interest coming in around 0.7090 (78.6% retracement) to 0.7110 (78.6% retracement).

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— Written by David Song, Currency Analyst

Follow me on Twitter at @DavidJSong.



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Forex

Traders Net-Short Are 63.3% Higher from Last Week

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US500,SP500

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



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On to the Next Big Levels of Resistance

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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)

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)

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)

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



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Aussie Dollar Falls on RBA Minutes, US-China Trade Talks Eyed

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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

Asia Pacific Trade Economic Calendar

EUROPEAN TRADING SESSION

Europe Trade Economic Calendar

** 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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