It is hard being an AUD bull these days; they just seem to be unable to catch a break. Prices tried hard to stay above the 0.92 round figure support earlier yesterday, with Bernanke’s dovish testimony to the House helping to push prices from the support level and allowed price to push higher within the rising Channel. However, the rally to Channel Top failed to materialize, and price even failed to test the 11th Jul swing high before falling back to 0.92 once again. Nonetheless, 0.92 was reliable once more, providing support and pushing price back towards the Channel once more during US midday. This time round however prices failed to do anything more beyond getting rejected by Channel Bottom.
The decline was exacerbated by the bearish Quarterly NAB Business Confidence, which came in at -1 vs previous quarter’s 2. A minus one read isn’t really bad considering that this index has been firmly within the negative zone since 2012. However, last quarter gave us some hope with a positive print, and a reversion back to the negative suggest that the recovery we were looking for simply isn’t there – Australia’s businesses remain bearish, which paints a negative picture leading towards the end of 2013. The disappointment is so great, that even the trusty o’ 0.92 support collapsed this time round. This place bulls in an unenviable position, as both fundamentals and technicals are starting to look shaky from here, potentially making short-work of the rally from last Friday’s lows.
From a pure technical perspective, the break of 0.92 opens up 9.110 once again, but 0.916 may provide some interim support. Not all is lost though, as Stochastic readings are entering deep into the Oversold region even before the interim support is reached, suggesting that the interim support may be strengthened, and making the 0.92 break a “fakeout”.
Daily Chart is less charitable to bulls, with price hitting the ceiling of current descending Channel. The Short-term sell-off seen today can be interpreted as the bearish rejection from Channel Top, which would open up Channel Bottom which is now below 0.90. However, before a move lower can materialized, Stochastic readings should ideally be pointing lower and not doing what it is doing now – increasing distance between Signal line and itself while seeking higher. Furthermore, price would also need to clear the 0.911 support as seen in the short-term chart before a stronger bearish move can be reasonably expected.
Expectations for RBA rate cuts continue to remain strong, with OIS still pricing in a probability of more than 50%. This will continue to weigh on AUD/USD for the foreseeable future until fundamentals start to pick up again. With China looking week, and Australian businesses not investing and spending, it is unlikely that fundamentals will be able to reverse quickly. The only magic bullet that may potentially come could be the September elections, where PM Rudd may wish to pull a “Ruddynomics”, and promise strong stimulus measures in order to get voted in.
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