So the Land Down Under has been going under, huh? After bouncing in a range like a crazy couple, Mr. Aussie finally reached our bearish target of 0.8600 as he dances against Ms. USA.
Will the AUD/USD pair go further down? Is this break an invitation for more drops? Let’s first review the reasons behind the massive fall of. Mr. Kangaroo.
1- Aussie’s Trade Balance Missed the Mark
Last month’s trade activity in the Land Down Under was not impressive. The deficit widened to 2.26 billion AUD in September. To top it off, the previous month’s figure was downgraded from a shortfall of 0.79 billion AUD to 1.01 billion AUD.
This means that imports have been outpacing exports for the past months, a sign that external demand is weakening. The recent decline in commodity prices has been blamed for lower export revenues, which could weigh on mining industry profits, while the Australian dollar’s depreciation has received credit for boosting import values.
2- The US dollar is Strengthening
It takes two to tango and that is precisely the case in the forex market. The AUD/USD pair has been dragging down not only because the lead of the pair (Mr. Aussie) is stumbling, but also because his counterpart, Ms. USA (AKA US dollar) is rising.
We have been buzzing about an up-moving US dollar after investor’s focus shifted from last month’s ending of the US quantitative easing to next year’s outlook of more conventional monetary policy settings. The Republicans’ decisive victory in the US midterm elections, giving them control of both chambers in the US Congress, and lower oil prices are also playing a part. Oil has been around its lowest level in about four years.
Further contributing the the US dollar strength is the struggling eurozone, the fact the Japan is doubling up its own long-term QE program, and of course, better than expected jobs data out of the US.
3- Aussie Carry Trades Are Undermined
Mr. Aussie was being supported by carry trades before the US dollar rise. Now, the more positive news flowing from the US, the rise in the US dollar and the prospect that US official rates will begin rising next year have also undermined this support.
Where once it was attractive, in a “risk-on” environment, to borrow cheaply in the US and Japan to invest in Australian dollar-denominated assets to achieve both a positive yield arbitrage and the prospect of currency appreciation, it now makes more sense to borrow in yen and buy US dollar assets to deliver those outcomes.
4- RBA Might Keep its Interest Rates Lower
The RBA left Australia’s target cash rate on hold at 2.5% as expected on Tuesday.Although the employment numbers out of the Kangaroo Land has been coming out better than expected, including that of this morning, where we saw 24.1K figure versus the estimated 20.3 K and rising from the previous month’s 23.7K number, the jobless rate has been increasing! So facing this tricky situation, Mr. Aussie had no choice but to lower his head against his major counterparts.
But in general looking at the past five jobs data, you’d notice that four of the releases were downgraded. There’s no concern about inflation, and the RBA also appears relatively unconcerned about housing price increases in the major cities.With that, analysts predicted that RBA Governor Stevens and his men will keep interest rates low for much longer.
Technical Overview
Mr. Aussie broke below a key support level and a rectangle chart pattern yesterday, reaching our bearish target of 0.8600, while remaining below the Ichimoku cloud. We could see more drops towards the 0.8500 level. at this point only a break above 0.8851 would change our outlook to bullish with 0.8974 as first alternative target.
Intraday Forex Technical Levels
EUR/USD 4-hour: Dropping.
Invest Diva Likes: Short positions below 1.2437 with targets at 1.2376 and 1.2289 in extension.
If Pair Goes Nuts: Above 1.2511 look for further upside towards 1.2604 and 1.2708.
What’s up on the Forex Dance Floor: The pair remains on an overall downtrend below the Ichimoku’s cloud. The RSI is moving below the neutrality area.
Supports and Resistances
1.2708
1.2604
1.2511
1.2437 Pivot Point
1.2376
1.2289
GBP/USD 4-hour: Consolidating.
Invest Diva Likes: Short positions below 1.5882 with targets at 1.5825 and 1.5719 in extension.
If Pair Goes Nuts: Above 1.5957 look for further upside towards 1.6025 and 1.6114.
What’s up on the Forex Dance Floor: The pair is consolidating between the pivot levels at 1.5957 and 1.5882 below the Ichimoku’s cloud. The RSI is moving below the neutrality area.
Supports and Resistances
1.6114
1.6025
1.5957 Pivot Point
1.5882
1.5825
1.5719
USD/JPY 4-hour: Uptrend prevails.
Invest Diva Likes: Long positions above 114.52 with targets at 115.60 and 117.50 in extension.
If Pair Goes Nuts: Below 114.52 look for further downside towards 112.64 and 111.68.
What’s up on the Forex Dance Floor: The pair remains on uptrend above the Ichimoku’s cloud. The RSI is moving above the overbought zone.
Supports and Resistances
117.50
115.60
114.52 Pivot Point
112.64
111.68
USD/CAD 4-hour: Uptrend.
Invest Diva Likes: Long positions above 1.1384 with targets at 1.1445 and 1.1570 in extension.
If Pair Goes Nuts: Below 1.1384 look for further downside towards 1.1293 and 1.1248.
What’s up on the Forex Dance Floor: The pair remains on uptrend above the Ichimoku’s cloud. The RSI is moving below the overbought zone.
Supports and Resistances
1.1570
1.1445
1.1384 Pivot Point
1.1293
1.1248
