Aussie started Asian trading lower despite a huge improvement in economic sentiment from Germany (ZEW Economic Survey 48.2 (A) vs 35 (F) and 31.5 (P) ). Asian stocks traded higher with N225 at +0.87% and HSI +0.48%. Even Australia equities benchmark index ASX posted slight gains of 0.40%. Hence it is surprising to see AUD/USD trading lower within such a positive atmosphere.
FX news traders will certainly not miss the 2 leading indicators that were published this morning. Australia’s Conference Board Leading Index came in at -0.1% for December, continuing to show shrinkage after November’s 0.2% fall. Westpac Leading Index came in at a paltry 0.2% growth, which is also sharply lower from the 0.7% print from the previous month. Certainly these 2 data aren’t earth shattering, and but from the divergence between Stocks and Currency, we can clearly identify that underlying bearish sentiment that is haunting the Aussie Dollar right now. One plausible explanation for this divergence is that traders and speculators expect RBA to step in with another rate cut eventually – if these leading indicators are proved to be correct. RBA has vowed to ease “if necessary” and that will have a dilution effect on AUD, but a propelling effect on stocks, which is exactly what we are seeing right now.
From a technical point of view, AUD/USD recovery from the lows just below 1.028 is not over yet, with price still having a distance to go before testing the 38.2% Fib, which is the confluence with the support back in 13th – 15th Feb. Though Stochastic is dipping, we could see readings entering Oversold regions when price is testing the Fib, adding strength to the Fib support. The enhanced support is a double-edged sword. Should bearishness pull-through, downside momentum may accelerate and ignore the subsequent Fib supports to test the 100% retracement easily, especially since there isn’t any strong price action around the subsequent Fib lines, other than the 50.0% (swing low of Feb 13th) which in itself is popularly used as a separator of pull-back vs retracement.
Daily Chart shows a strong downtrend is underway, though bearish momentum has taken a temporary hold with price breaking higher from the Channel Top after testing it on Monday. However, this is not an outright bullish sign as price has failed to exceed the previous swing high and also is threatening to trade below the previous swing low found in Dec 2012. A break below the levels will aid in bearish momentum. Channel Top may provide support once more, but as the Channel is downward sloping, the next support that we can find may be much lower by the time we reach it.
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