As it’s Monday here is a quick roundup of my favourite currency futures, on the September futures daily chart. Starting with the AUD/USD which was ambushed on two fronts last week. Firstly by the economic data and secondly by a resurgence of the US dollar. The reaction in the Aussie was most pronounced following the release of much weaker than expected Trade Balance figures which came in at a truly awful -1.91bn against a forecast of -0.16bn. This huge discrepancy is worrying for several reasons, not least since Australia is a major exporter of commodities so any negative trade balance sends several worrying signals. First that the country is importing more than it exports, and second (if this figure is correct), as a major exporter of commodities this may well be the first sign of a reversal in commodity prices and leading on from that a potential slowing of global growth, and in particular Chinese growth. I will be commenting on these aspects in later posts.
This negative picture for the Aussie was further reinforced the next day by poor retail sales which came in at -0.5% against a flat forecast. The only bright spot was building approvals which came in positive, but this data failed to halt the sharp move lower for the Aussie, triggered by the trade balance figures. From a technical perspective the sharp sell off promptly reversed the AUD/USD breakout from congestion, driving the pair directly back into the congestion area between 0.9300 and 0.9385. In early trading today the pair is finding support from the deep platform immediately below this range, and provided this holds then the pair could recover to re-establish the 0.9450 area in due course. However, the pair was also subject to some strong gains by the US dollar as it reversed its recent bearish sentiment reclaiming the 80 price point on the dollar index chart. Finally, and in addition, the currency strength indicator is also signalling the US dollar as heavily oversold and preparing to move higher.
Moving to cable, this pair too suffered from US dollar gains as it moved off the highs of 1.7150 to trade at time of writing at 1.7107 as the US markets get underway. Last Thursday’s pivot high has already signaled this short term bearish pullback, and should the US dollar continue to strengthen, expect to see cable re-test 1.7050 in due course. Longer term sentiment for the pair is bullish with the prospect of interest rate differentials the primary driver for the pair. Finally, the yellow line on the currency strength indicator (GBP) still has some way to go before reaching an overbought state.
Moving to the single currency this too reversed on US dollar strength rather than euro weakness, although Draghi’s ambivalent attitude continues to baffle the markets. Technical levels to watch for the EUR/USD are now the support platform below at 1.3520, which has held firm to date, while to the upside the very deep resistance at the 1.3680 region. These are now the two key price points as the pair consolidates once again in this price channel. Trading volumes for the EUR/USD remain light, but average for the time of year.
Finally moving to the CAD/USD the pair is now approaching a point of exhaustion at the 0.9400 price point where strong resistance appears to be preventing further progress. Here too, volumes also remain relatively low and for any upside momentum these will have to increase for a sustained breakout. The currency strength indicator is sending its own signals for this pair where we have the purple line (CAD) in a deeply overbought state with the US dollar deeply oversold adding further to the view that this pair is now preparing to reverse.