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AUD USD - FUNDAMENTAL DRIVERSAUD FUNDAMENTAL OUTLOOK: WEAK BULLISH BASELINE Despite a decent recovery from the start of the year, the AUD has struggled in the midst underlying negative risk sentiment, China’s continued struggles with Covid breakouts, and more recently the big slump in key commodities (Iron Ore & Coal). China’s economy is always a key focus for the AUD. While all major economies are expected to slow in 2022, China is expected to recover (monetary and fiscal policy very stimulative). The expected recovery is a key input for our bullish AUD bias. China’s recovery and planned infrastructure spending should support Australia’s terms of trade due to key commodity exports like Iron Ore, Coal and LNG. However, the expected recovery in China has not been enough to keep key Australian commodity prices supported, and the big flush lower in those markets saw chunky downside for the AUD in the past week. The RBA that has finally starting their hiking cycle (fairly aggressively as well) should be supportive for the AUD, but as markets were well prepared for the RBA’s departure from their unnecessary dovish stance the pivot has not been very supportive. The short-term problem to the current bullish bias for the AUD is further virus concerns in China and further drops in commodities. As long as the covid situation stays bleak, and commodities continue to fall, the AUD might struggle to take advantage of positive drivers and makes it more sensitive to underlying risk sentiment. POSSIBLE BULLISH SURPRISES Positive Covid developments in China (easing restrictions, more fiscal or monetary stimulus, or letting go of the covidzero policy) could trigger bullish reactions in the AUD. As a risk sensitive currency, catalysts that causes big bouts of risk on sentiment could trigger bullish reactions in the AUD. With the RBA just getting started with their hiking cycle, there is scope for them to turn more aggressive, which means any overly hawkish comments or actions from them in the week ahead could trigger some bullish reactions. Any catalyst that triggers some recovery in Australia’s key commodity exports (China stimulus, lifting covid restrictions, new infrastructure projects in China, higher inflation fears) should be supportive for the AUD. POSSIBLE BEARISH SURPRISES Negative Covid developments in China (increasing restrictions or adding new ones) could trigger bearish reactions in the AUD. As a risk sensitive currency, catalysts that causes big bouts of risk off sentiment could trigger bearish reactions in the AUD. Any catalyst that triggers more downside in Australia’s key commodity exports (additional China restrictions, demand destruction fears, and additional news on recent centralized iron ore buyers) could be negative for the AUD. The RBA has just started their new hiking cycle, and we’ve recently already heard the same stubbornly dovish comments from the likes of Gov Lowe pushing back against aggressive tightening. Thus, any overly dovish comments from them in the week ahead can trigger bearish reactions in the AUD. BIGGER PICTURE The bigger picture outlook for the AUD remains positive for now, but that is largely dependent on what happens to China and whether key commodities like Iron Ore and Coal can stop their recent bleeding. Until the covid situation improves materially and until commodities stabilize, the AUD might struggle to maintain upside short-term momentum. USD FUNDAMENTAL OUTLOOK: BULLISH BASELINE Hawkish Fed policy remains a key driver for Dollar strength. With headline inflation >8%, the Fed has been pressured to tighten policy aggressively, hiking rates by 75bsp at their June meeting, and continuing with Quantitative Tightening. However, as a result of increasing fears of a growth slowdown (as evidenced by recent econ data), STIR markets have repriced lower, and now expects a terminal rate of 3.3% (versus >4% before the June FOMC meeting). As STIRs reprice lower, we are expecting that to act as a possible short-term negative driver for the USD. Even though lower STIRs should be negative for the USD, as a lot of hikes have been baked in, the growth concerns sparked further risk off concerns this past week, which supported the USD. The USD is usually inversely correlated to the global economy and trade, appreciating when growth & inflation slows and depreciates when growth & inflation accelerates (reflation). Further expectations of a cyclical slowdown and continued tight monetary policy expectations has seen investors shun risk assets and even bonds (usually considered a safe haven), and the USD has been a key benefactor of the rush to safety in recent weeks. Even though US bonds are considered safe havens, the current high inflation has seen a strong stock-to-bond correlation and has caused big bond outflows. With bonds not fulfilling its usual save haven role the USD has been the haven of choice. POSSIBLE BULLISH SURPRISES As aggressive Fed policy has been supporting the USD, any incoming data (this week’s ISM Services and NFP) that sparks further aggressive hike expectations, or additionally any comments from FOMC members that signals even more aggressive policy could trigger bullish reactions in the USD. As the cyclical outlook for the global economy is very bleak, and the USD is considered a safe haven, it means incoming data that exacerbates fears of recession and triggers a big rush to safety could trigger bullish USD reactions. Further outflows in US bonds means more USD safe haven appeal. So, watching key triggers for further upside in bond yields like rising commodity prices, rising inflation expectations and upside surprises in inflation data could also trigger further USD bullish reactions. POSSIBLE BEARISH SURPRISES Apart from this past week, the USD has reacted cyclically to incoming data which could suggest markets is shifting from safe haven focus to the rising risks of recession. The worse growth data gets, the higher likelihood of a ‘Fed Put’ in the months ahead. Thus, extremely bad ISM Services PMI or NFP data this week could trigger bearish reactions in the USD. Tactically the USD is trading at cycle highs, and aggregate CFTC positioning is close prior highs which acted as local tops for the USD. Thus, stretched positioning could make the USD vulnerable to mean reversion in the short-term. With a lot already priced for the Fed, it won’t take much for the Fed to disappoint markets on the dovish side. Any FOMC comments that suggests more concern about the economy than inflation could trigger bearish reactions in the USD BIGGER PICTURE The fundamental outlook for the USD remains bullish as long as the Fed stays aggressive and cyclical concerns put pressure on risk assets. But we do want to be mindful that lots has been priced for the USD, and as growth deteriorates, we are expecting that the weigh on the USD if markets start pricing in a higher likelihood of a less hawkish Fed due to higher recession risks. The opposite side to that though is that further concerns about the economy sees more safe haven inflows into the Dollar. Positioning is stretched, so we would prefer much deeper pullbacks for new med-term USD longs and would look for short-term catalyst that offer shorter bearish sentiment trades against the current strong bull trend.
by thunderpips
AU BIG SHORT OPPORTUNITY - SWING TRADEAUD/USD Not looking good here. There is a strong key level at 68-69c that has acted as a huge resistance and support in the past going back years down the line if you take a look. We've created some real heavy bearish structure leading into this level and we just closed below it on the daily. IF the bearish trend continues, we could see a rejection of this level and what once was support will turn to resistance and i see no stopping it until the Weekly order block located below at my TP. Big R:R Trade. Risk Rating: 6/10 NFA DYOR.
Short
by AltSetupsTrader
AUDUSD 4hour Analysis June 27th, 2022AUDUSD Bearish Idea Weekly Trend: Bearish Daily Trend: Bearish 4Hour Trend: Bearish Trade scenario 1: We are still looking very bearish on AU but we can see a bit of choppiness forming just below 0.69500 resistance. From here, we ideally want to see bearish conviction step in and price action starts falling again. Look to target lower toward major support levels. Trade scenario 2: For us to consider AU bullish we first need to see a break of 0.69500 resistance. For me personally I would not consider long scenarios unless I see new structure above 0.70000
Short
by ForexLeague
AUD USD - FUNDAMENTAL DRIVERSAUD FUNDAMENTAL OUTLOOK: WEAK BULLISH BASELINE Despite a decent recovery from the start of the year, the AUD has struggled in the midst underlying negative risk sentiment, but the bigger short-term negative driver has been China’s covid struggles. China’s economy is always a key focus point for the AUD. While all major economies are expected to slow this year, China (which has been slowing for the past 18 months) is expected to recover (monetary and fiscal policy is at a big divergence between China and the rest of the world). This expected recovery in China has been a key positive driver for the AUD. As long as China’s recovery expectations remain alive, that should continue to support the Australian economy as it means further support for key commodity exports like Iron Ore, Coal and LNG . There was some news out this past week that China is looking to set up a centralized iron ore buyer to counter Australia’s dominance. Iron Ore has not taken this news well and will be an important one to watch as Iron Ore is Australia’s top export and 80% of it goes to China. The RBA finally woken up from their slumber and starting their hiking cycle fairly aggressively is also supportive for the AUD. The short-term problem to the current bullish bias for the AUD is the continued covid dilemma facing China right now. As long as the covid situation stays bleak, and China continues to lock down parts of the country due to their draconian covid-zero policy, the AUD might struggle to take advantage of the other positive drivers and makes it more sensitive to underlying risk. POSSIBLE BULLISH SURPRISES Positive Covid developments in China (easing restrictions, more fiscal or monetary stimulus, or letting go of the covidzero policy) could trigger bullish reactions in the AUD. As a risk sensitive currency, and catalyst that causes big bouts of risk on sentiment could trigger bullish reactions in the AUD. With the RBA just getting started with their hiking cycle, there is scope for them to turn more aggressive, and any catalyst that triggers higher hike expectations (RBA speak, inflation and wage data) could trigger a bullish response from the AUD. Any catalyst that triggers further upside in Australia’s key commodity exports (China stimulus, lifting covid restrictions, new infrastructure projects in China, higher inflation fears) should be supportive for the AUD. POSSIBLE BEARISH SURPRISES Negative Covid developments in China (increasing restrictions or adding additional ones) could trigger bearish reactions in the AUD. As a risk sensitive currency, and catalyst that causes big bouts of risk offsentiment could trigger bearish reactions in the AUD. Any catalyst that triggers downside in Australia’s key commodity exports (additional China restrictions, demand destruction fears, and additional news on recent centralized iron ore buyers) could be negative for the AUD. With the RBA just recently shifting policy and hitting the ground running on hikes, there is more room for them to get more aggressive, but of course any RBA speak or info in upcoming meetings that talks down aggressive hikes could still be a short-term negative for the AUD. BIGGER PICTURE The bigger picture outlook for the AUD remains positive for now, but that is largely dependent on what happens to China. The short-term covid issues have pushed back but not removed recovery expectations, but until the covid fog clears and the Chinese economy shows recovery signs, the AUD might struggle to maintain upside short-term momentum. USD FUNDAMENTAL OUTLOOK: BULLISH BASELINE Hawkish Fed policy remains a key driver for Dollar strength. With headline inflation >8%, the Fed has been pressured to tighten policy aggressively, hiking rates by 75bsp at their June meeting, and continuing with Quantitative Tightening. STIR markets suggests aggressive policy action pricing a terminal rate of >3.8% by 2Q23 which should be a positive input for the US Dollar . Safe haven flows have also supported the USD as it’s usually inversely correlated to the global economy and global trade, appreciating when growth & inflation slows (disinflation) and depreciates when growth & inflation accelerates (reflation). Expectations of a cyclical slowdown, accompanied by multi-decade high inflation and synchronized removal of monetary policy stimulus from major economies has seen investors shun risk assets and even bonds (usually considered a safe haven), and the USD has been a key benefactor of the rush to safety as economic prospects have deteriorated. Even though US bonds are considered safe havens, the current high inflation has seen a strong stock-to-bond correlation and has caused big bond outflows. With bonds not fulfilling its usual save haven role the USD has benefited from the rush to safety. POSSIBLE BULLISH SURPRISES As aggressive Fed policy has been supporting the USD, any incoming data (especially inflation ) that sparks further hike expectations, or additionally any comments from FOMC members that signals even more aggressive policy could trigger bullish reactions in the USD. As the cyclical outlook for the global economy is very bleak, and the USD is considered a safe haven, it means any incoming data that exacerbates fears of recession and triggers a big rush to safety could trigger bullish USD reactions. Further outflows in US bonds means more USD safe haven appeal. So, watching key triggers for further upside in bond yields like rising commodity prices and inflation expectations could also trigger further USD bullish reactions. POSSIBLE BEARISH SURPRISES More recently the USD has reacted more cyclically to incoming data which could suggest markets is shifting from safe haven focus to the rising risks of recession. The worse growth data slows, the higher likelihood of a ‘Fed Put’ in the months ahead. Thus, extremely bad growth data could trigger bearish reactions in the USD despite its safe haven appeal. Tactically the USD is trading at cycle highs, and aggregate CFTC positioning is still close prior highs which acted aslocal tops for the USD. Thus, stretched positioning could make the USD vulnerable to mean reversion in the short-term. With a lot already priced for the Fed, it won’t take much for the Fed to disappoint markets on the dovish side. Thus, any FOMC comments that suggests more concern about the economy than inflation could trigger bearish reactions in the USD BIGGER PICTURE The fundamental outlook for the USD remains bullish as long as the Fed stays aggressive and cyclical concerns put pressure on risk assets. But we do want to be mindful that lots has been priced for the USD, and growth deteriorates, we are expecting that the weigh on the USD if markets start pricing in a higher likelihood of a less hawkish Fed as a result of higher risks of recession. Furthermore, given tactical and CFTC positioning, we would prefer deeper pullbacks for new med-term USD longs, but shortterm catalyst can still offer shorter bearish sentiment trades against the current strong bull trend.
by thunderpips
2
AUDUSD can make new lows 🦐AUDUSD on the daily chart is currently testing a weekly support around the 0.7000 price area. The price after the recent retracement at the 0.72700 started a downtrend that can continue if the break of support will happen. How can i approach this scenario? We will wait for the EU market open and for a potential break of structure, in that case, i will check for a nice short order according to the Plancton's academy rules. ––––– Follow the Shrimp 🦐 Keep in mind. 🟣 Purple structure -> Monthly structure. 🔴 Red structure -> Weekly structure. 🔵 Blue structure -> Daily structure. 🟡 Yellow structure -> 4h structure. ⚫️ Black structure -> <4h structure. Here is the Plancton0618 technical analysis , please comment below if you have any question. The ENTRY in the market will be taken only if the condition of the Plancton0618 strategy will trigger
Short
by InkyGrip
6
AUD USD - FUNDAMENTAL DRIVERSAUD FUNDAMENTAL OUTLOOK: WEAK BULLISH BASELINE Despite a decent recovery from the start of the year, the AUD has struggled in the midst underlying negative risk sentiment, but the bigger short-term negative driver has been China’s covid struggles. China’s economy is always a key focus point for the AUD. While all major economies are expected to slow this year, China (which has been slowing for the past 18 months) is expected to recover (monetary and fiscal policy is at a big divergence between China and the rest of the world). This expected recovery in China has been a key positive driver for the AUD. As long as China’s recovery expectations remain alive, that should continue to support the Australian economy as it means further support for key commodity exports like Iron Ore, Coal and LNG . There was some news out this past week that China is looking to set up a centralized iron ore buyer to counter Australia’s dominance. Iron Ore has not taken this news well and will be an important one to watch as Iron Ore is Australia’s top export and 80% of it goes to China. The RBA finally woken up from their slumber and starting their hiking cycle fairly aggressively is also supportive for the AUD. The short-term problem to the current bullish bias for the AUD is the continued covid dilemma facing China right now. As long as the covid situation stays bleak, and China continues to lock down parts of the country due to their draconian covid-zero policy, the AUD might struggle to take advantage of the other positive drivers and makes it more sensitive to underlying risk. POSSIBLE BULLISH SURPRISES Positive Covid developments in China (easing restrictions, more fiscal or monetary stimulus, or letting go of the covidzero policy) could trigger bullish reactions in the AUD. As a risk sensitive currency, and catalyst that causes big bouts of risk on sentiment could trigger bullish reactions in the AUD. With the RBA just getting started with their hiking cycle, there is scope for them to turn more aggressive, and any catalyst that triggers higher hike expectations (RBA speak, inflation and wage data) could trigger a bullish response from the AUD. Any catalyst that triggers further upside in Australia’s key commodity exports (China stimulus, lifting covid restrictions, new infrastructure projects in China, higher inflation fears) should be supportive for the AUD. POSSIBLE BEARISH SURPRISES Negative Covid developments in China (increasing restrictions or adding additional ones) could trigger bearish reactions in the AUD. As a risk sensitive currency, and catalyst that causes big bouts of risk offsentiment could trigger bearish reactions in the AUD. Any catalyst that triggers downside in Australia’s key commodity exports (additional China restrictions, demand destruction fears, and additional news on recent centralized iron ore buyers) could be negative for the AUD. With the RBA just recently shifting policy and hitting the ground running on hikes, there is more room for them to get more aggressive, but of course any RBA speak or info in upcoming meetings that talks down aggressive hikes could still be a short-term negative for the AUD. BIGGER PICTURE The bigger picture outlook for the AUD remains positive for now, but that is largely dependent on what happens to China. The short-term covid issues have pushed back but not removed recovery expectations, but until the covid fog clears and the Chinese economy shows recovery signs, the AUD might struggle to maintain upside short-term momentum. USD FUNDAMENTAL OUTLOOK: BULLISH BASELINE Hawkish Fed policy remains a key driver for Dollar strength. With headline inflation >8%, the Fed has been pressured to tighten policy aggressively, hiking rates by 75bsp at their June meeting, and continuing with Quantitative Tightening. STIR markets suggests aggressive policy action pricing a terminal rate of >3.8% by 2Q23 which should be a positive input for the US Dollar . Safe haven flows have also supported the USD as it’s usually inversely correlated to the global economy and global trade, appreciating when growth & inflation slows (disinflation) and depreciates when growth & inflation accelerates (reflation). Expectations of a cyclical slowdown, accompanied by multi-decade high inflation and synchronized removal of monetary policy stimulus from major economies has seen investors shun risk assets and even bonds (usually considered a safe haven), and the USD has been a key benefactor of the rush to safety as economic prospects have deteriorated. Even though US bonds are considered safe havens, the current high inflation has seen a strong stock-to-bond correlation and has caused big bond outflows. With bonds not fulfilling its usual save haven role the USD has benefited from the rush to safety. POSSIBLE BULLISH SURPRISES As aggressive Fed policy has been supporting the USD, any incoming data (especially inflation ) that sparks further hike expectations, or additionally any comments from FOMC members that signals even more aggressive policy could trigger bullish reactions in the USD. As the cyclical outlook for the global economy is very bleak, and the USD is considered a safe haven, it means any incoming data that exacerbates fears of recession and triggers a big rush to safety could trigger bullish USD reactions. Further outflows in US bonds means more USD safe haven appeal. So, watching key triggers for further upside in bond yields like rising commodity prices and inflation expectations could also trigger further USD bullish reactions. POSSIBLE BEARISH SURPRISES More recently the USD has reacted more cyclically to incoming data which could suggest markets is shifting from safe haven focus to the rising risks of recession. The worse growth data slows, the higher likelihood of a ‘Fed Put’ in the months ahead. Thus, extremely bad growth data could trigger bearish reactions in the USD despite its safe haven appeal. Tactically the USD is trading at cycle highs, and aggregate CFTC positioning is still close prior highs which acted aslocal tops for the USD. Thus, stretched positioning could make the USD vulnerable to mean reversion in the short-term. With a lot already priced for the Fed, it won’t take much for the Fed to disappoint markets on the dovish side. Thus, any FOMC comments that suggests more concern about the economy than inflation could trigger bearish reactions in the USD BIGGER PICTURE The fundamental outlook for the USD remains bullish as long as the Fed stays aggressive and cyclical concerns put pressure on risk assets. But we do want to be mindful that lots has been priced for the USD, and growth deteriorates, we are expecting that the weigh on the USD if markets start pricing in a higher likelihood of a less hawkish Fed as a result of higher risks of recession. Furthermore, given tactical and CFTC positioning, we would prefer deeper pullbacks for new med-term USD longs, but shortterm catalyst can still offer shorter bearish sentiment trades against the current strong bull trend.
by thunderpips
1
AUDUSD, Potential Bearish Continuation | 14th June 2022On the H4, with price moving below the ichimoku cloud, we have a bearish bias that price will continue to drop from the sell entry at 0.69500 in line with the overlap resistance to the take profit at 0.68264 in line with the 100% fibonacci projection. Alternatively, price may break the entry structure and rise to the stop loss at 0.70383 at the pullback resistance and 38.2% fibonacci retracement. Any opinions, news, research, analyses, prices, other information, or links to third-party sites contained on this website are provided on an "as-is" basis, as general market commentary, and do not constitute investment advice. The market commentary has not been prepared in accordance with legal requirements designed to promote the independence of investment research, and it is therefore not subject to any prohibition on dealing ahead of dissemination. Although this commentary is not produced by an independent source, FXCM takes all sufficient steps to eliminate or prevent any conflicts of interest arising out of the production and dissemination of this communication. The employees of FXCM commit to acting in the clients' best interests and represent their views without misleading, deceiving, or otherwise impairing the clients' ability to make informed investment decisions. For more information about the FXCM's internal organizational and administrative arrangements for the prevention of conflicts, please refer to the Firms' Managing Conflicts Policy. Please ensure that you read and understand our Full Disclaimer and Liability provision concerning the foregoing Information, which can be accessed on the website.
Short
by Rockqet
1
AUDUSD, H4 Potential Bearish ContinuationOn the H4, with price moving below the ichimoku cloud and along the descending trendline, we have a bearish bias that price will continue to drop from the sell entry at 0.69498 in line with the overlap resistance to the take profit at 0.68287 in line with the 100% fibonacci projection. Alternatively, price may break the entry structure and rise to the stop loss at 0.70384 at the pullback resistance, 61.8% fibonacci projection and 38.2% fibonacci retracement. Please be advised that the information presented on TradingView is provided to Vantage (‘Vantage Global Limited’, ‘we’) by a third-party provider (‘Everest Fortune Group’). Please be reminded that you are solely responsible for the trading decisions on your account. There is a very high degree of risk involved in trading. Any information and/or content is intended entirely for research, educational and informational purposes only and does not constitute investment or consultation advice or investment strategy. The information is not tailored to the investment needs of any specific person and therefore does not involve a consideration of any of the investment objectives, financial situation or needs of any viewer that may receive it. Kindly also note that past performance is not a reliable indicator of future results. Actual results may differ materially from those anticipated in forward-looking or past performance statements. We assume no liability as to the accuracy or completeness of any of the information and/or content provided herein and the Company cannot be held responsible for any omission, mistake nor for any loss or damage including without limitation to any loss of profit which may arise from reliance on any information supplied by Everest Fortune Group.
Short
by VantageMarkets
1
AUDUSD 4hour Analysis June 12th, 2022AUDUSD Bearish Idea Weekly Trend: Bearish Daily Trend: Bearish 4Hour Trend: Bearish Trade scenario 1: We are looking bearish on all timeframes and last week we saw a major drop to our 0.70000 support zone. From here we’re looking to continue bearish and enter specifically on lower high setups. This could be a multiple setup analysis if price action continues to drop. Trade scenario 2: For us to consider AU bullish again we need to see a break back above 0.71150 with a higher low above.
Short
by ForexLeague
AUD USD - FUNDAMENTAL DRIVERSAUD FUNDAMENTAL BIAS: WEAK BULLISH 1. Monetary Policy At the May policy decision, the RBA made a hawkish turn by raising the cash rate by 0.25% versus STIR expectations of a 15bsp move. Even though there were some hawkish takes looking for a 40bsp move, the 25bsp was still higher than consensus expectations. The bank noted that inflation pressures have risen more than they expected, even without a sharp rise in wages, and means that further increases in the cash rate will be required to bring inflation back in line with their target. They also surprised markets on the balance sheet side by announcing that they are starting passive QT by stopping the reinvestment of maturing bonds. The hawkish surprise was enough to see STIR markets price in >60% chance of a 50bsp hike for the June meeting despite comments from Gov Lowe who said they don’t preclude a bigger or smaller rate move than 25bsp in the future. All-in-all the decision from the RBA was hawkish and has finally kick started the bank’s hiking cycle and should provide support for the AUD in the med-term as long as the bank keeps tightening expectations intact. 2. Idiosyncratic Drivers & Intermarket Analysis Apart from the RBA, there are 2 key drivers we’re watching for the med-term outlook: China – With the PBoC & CCP stepping up monetary and fiscal stimulus, any recovery in China usually bodes well for Australia (40% of exports goes to China). It has also meant that the virus situation in China posed short-term downside risks for AUD as it has pushed back recovery expectations. Thus, virus and stimulus developments in China remains key for the AUD. However, as long as recovery expectations in China remain intact, it bodes well for the med-term economic outlook for Australia as well. The AUKUS defence pact could see retaliation against Aussie goods and is worth keeping on the radar as well Commodities – Iron Ore (31%), Coal (14%) and LNG (10%) is more than 50% of Aussie exports, with the recent rise in prices giving the AUD a lot of support from a terms of trade perspective. As long as these key commodities remain supported it remains supportive for the AUD, but of course that also means any sizeable corrections will weigh on the AUD. Thus, geopolitical and China demand developments remain key focus points. 3. Global Risk Outlook As a high-beta currency, the AUD usually benefits from overall positive risk sentiment as well as environments that benefit pro-cyclical assets. Thus, both short-term (immediate) and med-term (underlying) risk sentiment will always be a key consideration for the AUD. 4. CFTC Analysis Very close to neutral signals for AUD positioning. Recent price action has been tricky with overall risk off sentiment and China growth concerns. That also means if risk sentiment can continue to find some reprieve this week it could see some short-term recovery in the AUD and will as always be a key focus for the week ahead. USD FUNDAMENTAL BIAS: WEAK BULLISH 1. Monetary Policy In May the Fed delivered on hawkish expectations by hiking the Fed Funds Rate by 50bsp and also confirmed that the committee expects further 50bsp hikes to be appropriate. The fed also stuck to a familiar hawkish tone by downplaying the prospects of an imminent recession by explaining that even though the economy contracted in Q1, that household spending and business investment remained strong. The Chair also stuck to their guns regarding the rate path by suggesting that they think reaching neutral (currently estimated at 2.4%) before year-end would be appropriate and will assess the need for further hikes when they get there. There were however some less hawkish elements which saw a very classic ‘sell-the-fact’ reaction in major asset classes. The first one was on the Quantitative Tightening front where the bank decided on a phased approach for balance sheet reduction by starting the monthly caps at 30bn (treasuries) and 17.5bn ( MBS ) and pushing it up to the expected $60bn (treasuries) and $35bn ( MBS ) over a three-month timeframe. The second less hawkish element was comments from Chair Powell who took 75bsp hikes off the table saying the committee was not actively considering rate moves of that size. Interestingly, it seems STIR markets did not really believe the Fed as the probability of a 75bsp hike stood at >70% directly following the presser. All-in-all, the meeting provided a short-term ‘sell-the-fact’ opportunity, but also cemented the view that despite signs of a slowing economy and despite clear stress in financial markets, the Fed is sticking to their aggressive tightening for now. 2. Global & Domestic Economy The USD’s global usage means it’s usually inversely correlated to the global economy and global trade. The USD usually appreciates when growth & inflation slows (disinflation) and depreciates when growth & inflation accelerates (reflation). Expectations of a cyclical slowdown have been USD positive. However, we think a lot of the growth concerns might be reflected in recent USD appreciation already. Furthermore, the USD has not been responding positively to bad data like we’ve seen from the start of the year. More recently we’ve seen the USD depreciate on bad data which could suggest that the USD’s driver has temporarily shifted away from the growth focus and shifted towards a Fed focus as the worse the incoming data becomes the higher the likelihood of a less aggressive Fed in the months ahead. Incoming data will be watched closely in relation to the infamous ‘Fed Put’. If growth data slows but not enough to stop the Fed’s hawkish path it’s USD positive, but if the data cause a Fed pivot that’ll be a big negative for the USD. 3. CFTC Analysis An overall bearish positioning change across major participant categories last week. Aggregate USD positioning remains close to 1 standard deviation above the mean, and close to prior tops where the USD topped out in previous cycles. That means we don’t want to chase the USD higher from here in the short-term.
by thunderpips
1