No new revelations from RBA minutes. But that didn’t stop market from pushing higher almost immediately following the release of the minutes. Traders are bullish about the AUD/USD following key phrases in the minutes which suggested that new rate cuts are “not imminent”. Prices hit a high of 0.9335, but was unable to hold onto to the gains with bears setting in immediately, sending price lower and pushing below the pre-announcement level. This cannot be considered as unexpected as the key phrases in the minutes was already spoken by RBA Gov Stevens during the original rate decision earlier this month. Hence it is hard to justify the rally on a fundamental basis. From the technical end, bulls went straight into the resistance brick wall that is 0.933 (see weekly chart), and hence it is not surprising to see technical bears able to send this ill-advised rally lower quickly.
Looking at yesterday’s price action, there were already bearish signs in the stars. Firstly, price was unable to climb above the initial bull gap of Monday’s morning, and the likelihood of bears filling in the gap increases. Secondly, there are signs of QE Tapering fears creeping back in, which would favor USD as we approach Wednesday’s FOMC announcement. Looking at Stochastic, we can see that a potential bullish signal has been averted, which lends strength to the bearish momentum. Immediate bearish support will be the 0.923 – 0.928 consolidation, and a breach of that level may result in further acceleration as the short-term bull trend from 2nd Sept will be partially invalidated.
By trading underneath the key 0.933 ceiling, 0.89 opens up as potential bearish target in the short-term. However, stochastic readings suggest that bullish momentum isn’t over, with Stoch curve barely at the 50.0 mark with half a cycle more to go. That being said, seeing that Stoch peaks have been steadily lower since August 2012, it will not be too surprising to see current Stoch curve peaking at where we are currently, but there simply isn’t any evidence of that happening right now.
With FOMC event risk this Wednesday, USD volatility is to be expected. Many analysts believe that market has already priced in a 10-15% tapering scenario, and a lack of and tapering announcement may result in USD weakening which will push AUD/USD higher. Whether this may translate into a longer-term bullish recovery for AUD/USD remains unknown, but certainly long-term fundamentals still favor a stronger USD with tapering definitely coming within the next few months amidst a US recovery narrative.
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