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Australiandollar

AUDUSD at the bottom of long-term Channel Down. Critical test!The AUDUSD pair has been trading within a long-term Channel Down pattern since the February 25 2021 market top. As we pointed out on our previous analysis on this pair, the trend remains bearish unless we get a candle closing above the 1D MA200 (orange trend-line): In fact as you see, we got an emphatic rejection on the 1D MA200 instead, the 2nd within this 1.5 year long Channel Down pattern. Right now the price is on the Lower Lows (bottom) trend-line of this pattern, having marginally broken below the 0.67780 Gap. A closing below the Channel opens the way for the next Gap around 0.64000, in a similar sell-off fashion as the March 2020 break-down. As a result, a tight SL buy here is most optimal with low risk, targeting the 0.5 Fib (middle of Channel Down) and then break-out but if we close above the 1D MA200. But if the SL gets hit be quick to reverse to a sell targeting the 0.6400 Gap but take no risk, constantly moving the SL on break-even/ then on profit. -------------------------------------------------------------------------------------------------------- ** Please support this idea with your likes and comments, it is the best way to keep it relevant and support me. ** --------------------------------------------------------------------------------------------------------
by TradingShot
2
🦘Australian Rate Hikes vs European Risks Worsening 🔥💤Australia’s central bank hikes interest rates for the third month in a row. AUD KEY POINTS: Wrapping up its July policy meeting, the Reserve Bank of Australia lifted its cash rate by 50 basis points to 1.35%, marking 125 basis points of hikes since May and the fastest series of moves since 1994. “The Board expects to take further steps in the process of normalizing monetary conditions in Australia over the months ahead,” said RBA Governor Philip Lowe in a statement. The hike was widely expected in markets and the local dollar eased slightly in reaction to $0.6863 while futures narrowed the odds on another half-point hike in August. EUR KEY POINTS: Euro plunges to two-decade low vs dollar: As expected and as mentioned here one too many times. Since our perfect short on EURUSD at 1.23 No surprise as we even called for parity more recently . It will continue to be very difficult for the euro to rally in any meaningful way with the energy picture worsening and risks to economic growth increasing notably. Europe will pay the main bill for Ukraine! Survey data showed business growth across the euro zone slowed further last month and forward-looking indicators suggested the region could slip into decline this quarter as the cost of living crisis keeps consumers wary. Not to mention that if Biden indeed eases tensions with China, Australia could benefit greatly. Definition of a Forex trade here and unlike EURUSD leaving less room for profit, EURAUD looks great. One Love, the FXPROFESSOR
Short
by FX_Professor
9
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
AUD CAD - 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. CAD FUNDAMENTAL OUTLOOK: NEUTRAL BASELINE The CAD has enjoyed far more upside in the past few weeks than we anticipated. We’ve been cautious on the currency given Canada’s dependency on the US (>70% of exports) where the clear signs of a faster than expected slowdown and possible recession should deteriorate the growth outlook for Canada. Apart from that, the risks to the Canadian housing market can negatively impact consumer spending as interest rates rise higher at aggressive speed. Potentially damaging the wealth effect created by the rapid rise in house prices since covid. However, despite the risks to the economy and the outlook, markets still price in a very favourable growth environment for Canada, also supported by a big push higher in terms of trade due to the rise in commodity prices. Furthermore, despite clear warning signals, the BoC has chosen to ignore the negatives and has stayed surprisingly optimistic and hawkish. We’ve missed most of the move higher in the CAD as our bias has kept us cautious, but the risks are still present and with the currency close to 9-year highs (at the index level) we are looking for opportunities to trade it lower on bearish catalyst. POSSIBLE BULLISH SURPRISES As an oil exporter, oil prices are important for CAD. Catalysts that see further upside in Oil (deteriorating supply outlook, ease in demand fears) could trigger bullish CAD reactions. The correlation has been hit and miss in recent weeks though. As a risk sensitive currency, and catalyst that causes big bouts of risk on sentiment could trigger bullish reactions in the CAD. With more market participants noticing cracks in the housing markets, a less dramatic decline in house prices could ease some of those concerns and provide some upside. Even though lots of tightening has been priced for the BoC , big enough upside surprise in CPI or incoming jobs data (showing the jobs market is holding up good) that triggers further hike expectations could provide some short-term upside. POSSIBLE BEARISH SURPRISES As an oil exporter, oil prices are important for CAD. Any catalyst that triggers meaningful downside in oil (deteriorating demand outlook, ease in supply shortage, less supply constraints) could be a negative catalyst for the CAD as well. As a risk sensitive currency, and catalyst that causes big bouts of risk off sentiment could trigger bearish reactions in the CAD. Since a lot of policy tightening has been priced into STIR markets, any negative catalysts that triggers less hawkish BoC expectations (faster deceleration in growth, inflation or jobs) could trigger outsized downside for the CAD. In recent communication, Governor Macklem started to mention some hiccups in housing. Big downside surprises in house prices could trigger speculation of a less hawkish bank and trigger downside for the CAD. BIGGER PICTURE The bigger picture outlook for the CAD remains neutral for now. Given the clear risks to the growth outlook due to the slowdown in the US, as well as rising risks to the consumer and the housing market, we remain cautious on the currency, even though it’s moved much higher than we anticipated. With a lot of good news priced in for the CAD and yields, our preferred way of trading the CAD is lower on short-term negative catalysts.
by thunderpips
AUD CAD - 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. CAD FUNDAMENTAL OUTLOOK: NEUTRAL BASELINE The CAD has enjoyed far more upside in the past few weeks than we anticipated. We’ve been cautious on the currency given Canada’s dependency on the US (>70% of exports) where the clear signs of a faster than expected slowdown and possible recession should deteriorate the growth outlook for Canada. Apart from that, the risks to the Canadian housing market can negatively impact consumer spending as interest rates rise higher at aggressive speed. Potentially damaging the wealth effect created by the rapid rise in house prices since covid. However, despite the risks to the economy and the outlook, markets still price in a very favourable growth environment for Canada, also supported by a big push higher in terms of trade due to the rise in commodity prices. Furthermore, despite clear warning signals, the BoC has chosen to ignore the negatives and has stayed surprisingly optimistic and hawkish. We’ve missed most of the move higher in the CAD as our bias has kept us cautious, but the risks are still present and with the currency close to 9-year highs (at the index level) we are looking for opportunities to trade it lower on bearish catalyst. POSSIBLE BULLISH SURPRISES As an oil exporter, oil prices are important for CAD. Catalysts that see further upside in Oil (deteriorating supply outlook, ease in demand fears) could trigger bullish CAD reactions. The correlation has been hit and miss in recent weeks though. As a risk sensitive currency, and catalyst that causes big bouts of risk on sentiment could trigger bullish reactions in the CAD. With more market participants noticing cracks in the housing markets, a less dramatic decline in house prices could ease some of those concerns and provide some upside. Even though lots of tightening has been priced for the BoC, big enough upside surprise in CPI or incoming jobs data (showing the jobs market is holding up good) that triggers further hike expectations could provide some short-term upside. POSSIBLE BEARISH SURPRISES As an oil exporter, oil prices are important for CAD. Any catalyst that triggers meaningful downside in oil (deteriorating demand outlook, ease in supply shortage, less supply constraints) could be a negative catalyst for the CAD as well. As a risk sensitive currency, and catalyst that causes big bouts of risk off sentiment could trigger bearish reactions in the CAD. Since a lot of policy tightening has been priced into STIR markets, any negative catalysts that triggers less hawkish BoC expectations (faster deceleration in growth, inflation or jobs) could trigger outsized downside for the CAD. In recent communication, Governor Macklem started to mention some hiccups in housing. Big downside surprises in house prices could trigger speculation of a less hawkish bank and trigger downside for the CAD. BIGGER PICTURE The bigger picture outlook for the CAD remains neutral for now. Given the clear risks to the growth outlook due to the slowdown in the US, as well as rising risks to the consumer and the housing market, we remain cautious on the currency, even though it’s moved much higher than we anticipated. With a lot of good news priced in for the CAD and yields, our preferred way of trading the CAD is lower on short-term negative catalysts.
by thunderpips
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
AUD CAD - 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 and China’s continued struggles with Covid breakouts. 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 . 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, along with global growth concerns, 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 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, 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, catalysts that causes big bouts of risk off sentiment 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. CAD FUNDAMENTAL OUTLOOK: NEUTRAL BASELINE The CAD has enjoyed far more upside in the past few weeks than we anticipated. We’ve been cautious on the currency given Canada’s dependency on the US (>70% of exports) where the clear signs of a faster than expected slowdown and possible recession should deteriorate the growth outlook for Canada. Apart from that, the risks to the Canadian housing market can negatively impact consumer spending as interest rates rise higher at aggressive speed. Potentially damaging the wealth effect created by the rapid rise in house prices since covid. However, despite the risks to the economy and the outlook, markets still price in a very favourable growth environment for Canada, also supported by a big push higher in terms of trade due to the rise in commodity prices. Furthermore, despite clear warning signals, the BoC has chosen to ignore the negatives and has stayed surprisingly optimistic and hawkish. We’ve missed most of the move higher in the CAD as our bias has kept us cautious, but the risks are still present and with the currency close to 9-year highs (at the index level) we are looking for opportunities to trade it lower on bearish catalyst. POSSIBLE BULLISH SURPRISES As an oil exporter, oil prices are important for CAD. Catalysts that sees further upside in Oil (deteriorating supply outlook, ease in demand fears) could trigger bullish CAD reactions. The correlation has been hit and miss in recent weeks though. As a risk sensitive currency, and catalyst that causes big bouts of risk on sentiment could trigger bullish reactions in the CAD. With more market participants noticing cracks in the housing markets, a less dramatic decline in house prices could ease some of those concerns and provide some upside. Even though a lot of tightening has been priced in for the BoC , a big enough upside surprises in CPI that triggers further hike expectations could provide some short-term support. POSSIBLE BEARISH SURPRISES As an oil exporter, oil prices are important for CAD. Any catalyst that triggers meaningful downside in oil (deteriorating demand outlook, ease in supply shortage, less supply constraints) could be a negative catalyst for the CAD as well. As a risk sensitive currency, and catalyst that causes big bouts of risk off sentiment could trigger bearish reactions in the CAD. Since a lot of policy tightening has been priced into STIR markets, any negative catalysts that triggers less hawkish BoC expectations (faster deceleration in growth or inflation ) could trigger outsized downside for the CAD. In recent communication, Governor Macklem started to mention some hiccups in housing. Big downside surprises in house prices could trigger speculation of a less hawkish bank and trigger downside for the CAD. BIGGER PICTURE The bigger picture outlook for the CAD remains neutral for now. Given the clear risks to the growth outlook due to the slowdown in the US, as well as rising risks to the consumer and the housing market, we remain cautious on the currency, even though it’s moved much higher than we anticipated. With a lot of good news priced in for the CAD and yields, our preferred way of trading the CAD is lower on short-term negative catalysts.
by thunderpips
3
Economic view of the Australian dollarAs fears that a recession is just around the corner for the US, some economists are warning that Australia could follow suit. Some, however, remain bullish on the Australian economy due to high household savings, strong commodity exports, accommodative government stimulus and a robust pipeline of residential building constructions. Emerging from pandemic-induced recession The Australian economy recorded its worst single quarterly economic contraction since the 1930s Great Depression in the second quarter of 2020. Like many countries, the economy was hit hard by COVID-19 restrictions in the first half of 2020. The country emerged from that recession in the third quarter of 2020. Australia was among a few that managed to bounce back quickly as the government relaxed restrictions, fueling a recovery in consumption. Household spending contributed the most to the overall recovery as the easing of lockdown measures unleashed pent-up consumer demand. Delta derails recovery The economy continued on its recovery path until the third quarter of 2021 when Australia’s GDP contracted due to measures imposed to prevent the spread of the Delta variant of COVID-19. Household spending was hurt by local governments’ move to reimpose curbs. Australia rebounded in the fourth quarter as Delta-related lockdowns were lifted towards the end of 2021. "Consumers enthusiastically returned to discretionary spending following the end of delta-related lockdowns,” Australia’s statistics official Ben James said at the time. The Australian economy has swung from short periods of downturn to quick recoveries as soon as governments lift border restrictions and other curbs after containing local outbreaks. But as global inflation shocks and interest rate hikes by other central banks prompted the Reserve Bank of Australia to also take a hawkish approach to tame inflation, many experts are warning that the country could face another economic downturn. Brace for more tightening Earlier this month, the RBA raised its official cash rate by 50 basis points to 0.85%, surprising the market that had predicted the rate hike at 25 or 50 bp. RBA Governor Philip Lowe last week warned of more tightening in the months to come as the monetary policy board believes the current rate is still “very low for an economy with low unemployment and that is experiencing high inflation.” Australia’s unemployment rate remained at a record low of 3.9% in May, while the country’s first-quarter inflation rate accelerated to a 20-year high of 5.1% from 3.5% in the fourth quarter of last year. Recession likely to happen As commodity prices continue to skyrocket and as the central bank pursues a hawkish stance, BetaShares Chief Economist David Bassanese said there is a 40% chance that Australia could enter a recession within the next 12 months. “When the US sneezes, we catch a cold. The local share market will not be immune to further Wall Street weakness, especially as we also face uncomfortably high inflation and likely aggressive RBA rates hikes in coming months,” Bassanese said in a recent note. The economist noted that the local stock market will likely follow the US into bear market territory in the coming months. AMP Capital economist Diana Mousina last week said the high inflation environment is adding to weakness in consumer spending. AMP Capital lowered its GDP growth expectation for Australia this year to 2.7% from 4%. Mousina, however, said the strength in residents’ accumulated savings and supportive fiscal and monetary stimulus will likely keep the country’s economy from collapsing. “A lot of positives” This was echoed by RBA's Lowe last week when he played down worries over a looming recession in Australia, saying he doesn’t see a recession on the horizon. "Australia has a lot of positives… But if the last two years have taught us anything, you can't rule anything out,” the RBA governor said.
by BlackBull_Markets
AUD CAD - 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 and China’s continued struggles with Covid breakouts. 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. 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, along with global growth concerns, 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 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, 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, catalysts that causes big bouts of risk off sentiment 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. CAD FUNDAMENTAL OUTLOOK: NEUTRAL BASELINE The CAD has enjoyed far more upside in the past few weeks than we anticipated. We’ve been cautious on the currency given Canada’s dependency on the US (>70% of exports) where the clear signs of a faster than expected slowdown and possible recession should deteriorate the growth outlook for Canada. Apart from that, the risks to the Canadian housing market can negatively impact consumer spending as interest rates rise higher at aggressive speed. Potentially damaging the wealth effect created by the rapid rise in house prices since covid. However, despite the risks to the economy and the outlook, markets still price in a very favourable growth environment for Canada, also supported by a big push higher in terms of trade due to the rise in commodity prices. Furthermore, despite clear warning signals, the BoC has chosen to ignore the negatives and has stayed surprisingly optimistic and hawkish. We’ve missed most of the move higher in the CAD as our bias has kept us cautious, but the risks are still present and with the currency close to 9-year highs (at the index level) we are looking for opportunities to trade it lower on bearish catalyst. POSSIBLE BULLISH SURPRISES As an oil exporter, oil prices are important for CAD. Catalysts that sees further upside in Oil (deteriorating supply outlook, ease in demand fears) could trigger bullish CAD reactions. The correlation has been hit and miss in recent weeks though. As a risk sensitive currency, and catalyst that causes big bouts of risk on sentiment could trigger bullish reactions in the CAD. With more market participants noticing cracks in the housing markets, a less dramatic decline in house prices could ease some of those concerns and provide some upside. Even though a lot of tightening has been priced in for the BoC, a big enough upside surprises in CPI that triggers further hike expectations could provide some short-term support. POSSIBLE BEARISH SURPRISES As an oil exporter, oil prices are important for CAD. Any catalyst that triggers meaningful downside in oil (deteriorating demand outlook, ease in supply shortage, less supply constraints) could be a negative catalyst for the CAD as well. As a risk sensitive currency, and catalyst that causes big bouts of risk off sentiment could trigger bearish reactions in the CAD. Since a lot of policy tightening has been priced into STIR markets, any negative catalysts that triggers less hawkish BoC expectations (faster deceleration in growth or inflation) could trigger outsized downside for the CAD. In recent communication, Governor Macklem started to mention some hiccups in housing. Big downside surprises in house prices could trigger speculation of a less hawkish bank and trigger downside for the CAD. BIGGER PICTURE The bigger picture outlook for the CAD remains neutral for now. Given the clear risks to the growth outlook due to the slowdown in the US, as well as rising risks to the consumer and the housing market, we remain cautious on the currency, even though it’s moved much higher than we anticipated. With a lot of good news priced in for the CAD and yields, our preferred way of trading the CAD is lower on short-term negative catalysts.
by thunderpips
4
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
EURAUD: Complete Indecision 🇪🇺🇦🇺 Very peculiar situation on EURAUD pair: the market is stuck between 2 structures, one - major weekly resistance, one - key daily support. Depending on the reaction of the price to these structures, I see 2 potential scenarios: If the price breaks 1.528 - 1.538 resistance and closes above that on a weekly, I will expect a bullish trend continuation to 1.558 If the price breaks 1.516 - 1.52 support and closes below that on a daily, I will expect a bearish move at least to 1.505. Wait for a breakout and the follow the market. What do you expect? ❤️If you have any questions, please, ask me in the comment section. Please, support my work with like, thank you!❤️
Long
by VasilyTrader
8
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
AUD JPY - 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. JPY FUNDAMENTAL OUTLOOK: BEARISH BASELINE The Yen has seen a lot of depreciation this year driven by very negative fundamentals. Yield differentials has by far had the biggest negative impact. With other major central banks starting aggressive hiking cycles, it has lifted yields quite dramatically, which has seen yields like US10Y push considerably higher than 10-year Japanese yields capped at 0.25% by yield curve control. That means dovish monetary policy remains a key negative driver. Despite inflation starting to push higher in Japan, and despite the lessons from other central banks now struggling with inflation last seen since the 70’s, the bank has once again at their June meeting stayed stubbornly dovish keeping yields capped at 0.25%. At this stage the bank is playing a very dangerous game by allowing the JPY to weaken, further adding to inflationary risks. Their dovish persistence remains a negative for the JPY. Even though the JPY is considered a safe haven, the inflows has been more limited compared to other cycles. The main reason for that is that the bank’s current account surplus (a main reason for safe haven appeal) has deteriorated due to the rise in commodity prices. Japan imports over 90% of their energy commodities, so the continued rise in oil prices has added to the downside and eroded some of the classic safe haven appeal. The BoJ and MoF’s reluctance to intervene to stop the rapid depreciation in the JPY in recent weeks has been noticeable. As long as they just voice their dislike but fail to act, the market will keep testing them and shorting the JPY. POSSIBLE BULLISH SURPRISES Monetary policy is stubbornly dovish. Any catalyst that triggers speculation that the BoJ could drop YCC or hike rates or both (big upside surprises in inflation) could trigger upside in JPY, which means Friday’s CPI print will be in focus. Catalysts that trigger meaningful corrections in US10Y (less hawkish Fed, faster deceleration in US CPI, faster deceleration in US growth) or meaningful bouts of risk off sentiment could trigger bullish reactions from the JPY. Any catalyst that triggers meaningful downside in key commodities like Oil (deteriorating demand outlook, ease in supply shortage) could trigger bullish JPY reactions as well. Any intervention from the BoJ or MoF to stop JPY depreciation (buying the JPY or giving firm and clear lines in the sand for USDJPY) could offer decent reprieve for the JPY. POSSIBLE BEARISH SURPRISES With yield differentials playing such a huge role for the JPY, any catalysts that push US10Y higher (more aggressive Fed, further acceleration in US CPI, better-than-expected US growth data) could trigger further bearish price action for the JPY. Any catalyst that creates further upside in oil prices (further supply concerns, geopolitical tensions) poses downside risks for Japan’s current account surplus and could trigger further bearish reactions in the JPY. Further reluctance from the BoJ and MoF to address the concerning depreciation in the JPY is a continued negative driver for the JPY to keep on the radar. BIGGER PICTURE The bigger picture remains bleak for the JPY, especially after the BoJ once again stuck to the same overly dovish script this past week. As long as US10Y gains ground and as long as the BoJ stays unnecessarily dovish and no push back is made against the JPY weakness from the BoJ or MoF, the bias remains lower. Take note that positioning has been stretched (tactically and CFTC) for some time, which means we don’t want to chase the JPY lower from here.
by thunderpips
1
AUD CAD - 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. CAD FUNDAMENTAL OUTLOOK: NEUTRAL BASELINE The CAD has enjoyed far more upside in the past few weeks than we anticipated. We’ve been cautious on the currency given Canada’s dependency on the US (>70% of exports) where the clear signs of a faster than expected slowdown and possible recession should deteriorate the growth outlook for Canada. Apart from that, the risks to the Canadian housing market can negatively impact consumer spending as interest rates rise higher at aggressive speed. Potentially damaging the wealth effect created by the rapid rise in house prices since covid. However, despite the risks to the economy and the outlook, markets still price in a very favourable growth environment for Canada, also supported by a big push higher in terms of trade due to the rise in commodity prices. Furthermore, despite clear warning signals, the BoC has chosen to ignore the negatives and has stayed surprisingly optimistic and hawkish. We’ve missed most of the move higher in the CAD as our bias has kept us cautious, but the risks are still present and with the currency close to 9-year highs (at the index level) we have very little appetite for chasing it higher from here and will be actively looking for opportunities to trade the CAD lower with the right type of bearish catalyst. POSSIBLE BULLISH SURPRISES As an oil exporter, oil prices are important for CAD. Catalyst that sees further upside Oil (deteriorating supply outlook, ease in demand fears) could trigger bullish CAD reactions. The correlation has been hit and miss in recent weeks though. As a risk sensitive currency, and catalyst that causes big bouts of risk on sentiment could trigger bullish reactions in the CAD. With more market participants noticing cracks in the housing markets, a very solid House Price Index print could ease some of those concerns and provide some upside. Even though a lot of tightening has been priced in for the BoC, a big enough surprise in CPI that triggers further hike expectations could provide some short-term support. POSSIBLE BEARISH SURPRISES As an oil exporter, oil prices are important for CAD. Any catalyst that triggers meaningful downside in oil (deteriorating demand outlook, ease in supply shortage, less supply constraints) could be a negative catalyst for the CAD as well. As a risk sensitive currency, and catalyst that causes big bouts of risk off sentiment could trigger bearish reactions in the CAD. Since a lot of policy tightening has been priced into STIR markets, any negative catalysts that triggers less hawkish BoC expectations (faster deceleration in growth or inflation) could trigger outsized downside for the CAD. In recent communication, Governor Macklem started to mention some hiccups in housing. A big miss in the House Price index could trigger more speculation of a less hawkish bank and could trigger some downside for the CAD. BIGGER PICTURE The bigger picture outlook for the CAD remains neutral for now. Given the clear risks to the growth outlook due to the slowdown in the US, as well as rising risks to the consumer and the housing market, we remain cautious on the currency, even though it’s move much higher than we anticipated. With a lot of upside priced into the CAD and Canadian yields, our preferred way of trading the CAD would be to look for short-term negative catalysts to trade the CAD lower instead of chasing it higher.
by thunderpips
3
AUDCHF Neutral for the summer, bullish break-out end-of-yearThe AUDCHF pair has been neutral since the start of April following our plan with great consistency, as outlined on our last analysis: As you see, the price has been trading inside that box as the June - September 2020 fractal suggested. This time, we also have the 1W MA200 (red trend-line) that provides support. The 1D MACD shows that we are at a point where one last pull-back is possible before the pattern breaks to the upside. We keep scalping this formation until 0.7100 breaks, which will be a bullish break-out call aimed at 0.726500 and (under circumstances which we will update) the 1.236 Fibonacci extension at 0.746560. -------------------------------------------------------------------------------------------------------- ** Please support this idea with your likes and comments, it is the best way to keep it relevant and support me. ** --------------------------------------------------------------------------------------------------------
by TradingShot
4
EURAUD going for the 1D MA200 testThe EURAUD pair has been trading within a long-term Bearish Megaphone pattern but since the April 05 bottom, it has established a Channel Up on the medium-term. A similar Channel Up pattern was what took the Megaphone to its previous Lower High. In the process, the 1D MA50 (blue trend-line) has been turned into a Support and the next technical Resistance is the 1D MA200 (orange trend-line). It would be best to trade this with a break-out approach. If the price breaks above the 1D MA200, go long and target the 0.5 Fibonacci around 1.58450. If rejected, take a long-term sell towards 1.4500 and quite possibly 1.4000 as a Lower Low. -------------------------------------------------------------------------------------------------------- ** Please support this idea with your likes and comments, it is the best way to keep it relevant and support me. ** --------------------------------------------------------------------------------------------------------
by TradingShot
3
AUD CAD - FUNDAMENTAL DRIVERSAUD FUNDAMENTAL OUTLOOK: WEAK BULLISH After a tumultuous ride in 2021, the AUD has seen a decent recovery so far this year. The geopolitical tensions in Europe gave the commodity dependent currency a boost as commodity prices surged and seeing record highs for Australian terms of trade. Apart from that, China’s economy has been a key focus point for the AUD. With China having a very different cyclical outlook compared to other major economies, that has been a key positive driver 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). Thus, 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. The fact that the RBA has finally woken up from their slumber and started their hiking cycle fairly aggressively is also supportive for the AUD. However, the short-term problem to the current bullish bias and something that has been weighing on the currency 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 covidzero policy, the AUD might struggle to take advantage of the other positive drivers and also makes it more sensitive to the overall underlying negative risk sentiment in risk assets. POSSIBLE HAWKISH 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 (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 DOVISH SURPRISES Negative 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 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) should be 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 struggles, the AUD will struggle to maintain upside momentum in the short-term, despite positive catalysts. CAD FUNDAMENTAL OUTLOOK: NEUTRAL The CAD has enjoyed far more upside in the past few weeks than we anticipated. We’ve been cautious on the currency given Canada’s dependency on the US (>70% of exports) where the clear signs of a faster than expected slowdown in the US should have deteriorated the growth outlook for Canada. Apart from that, the risks to the Canadian housing market risks to negatively impact consumer spending as interest rates rise higher at aggressive speed, potentially damaging the wealth effect created by the rapid rise in house prices since covid. However, despite the risks to economy and the risks to the outlook, markets still price in a very favourable growth environment for Canada, also supported by a big push higher in terms of trade due to the rise in commodity prices. Furthermore, despite clear warning signals, the BoC has chosen to ignore the negatives and has stayed surprisingly positive and hawkish. We’ve miss most of the move higher in the currency as we’ve been cautious in our bias, but the risks are still present and with the currency at 9-year highs (at the index level) we have very little appetite for chasing it higher from here. POSSIBLE HAWKISH SURPRISES As an oil exporter, oil prices are important for CAD. Catalyst that sees further upside Oil (deteriorating supply outlook, ease in demand fears) could trigger bullish CAD reactions. The correlation has been hit and miss in recent weeks though. As a risk sensitive currency, and catalyst that causes big bouts of risk on sentiment could trigger bullish reactions in the CAD. POSSIBLE DOVISH SURPRISES As an oil exporter, oil prices are important for CAD. Catalyst that sees further upside Oil (deteriorating supply outlook, ease in demand fears) could trigger bullish CAD reactions. The correlation has been hit and miss in recent weeks though. As a risk sensitive currency, and catalyst that causes big bouts of risk off sentiment could trigger bearish reactions in the CAD. Since a lot of policy tightening has been priced into STIR markets, any negative catalysts that triggers less hawkish BoC expectations (faster deceleration in growth or inflation ) could trigger outsized downside for the CAD. BIGGER PICTURE The bigger picture outlook for the CAD remains neutral for now. Given the clear risks to the growth outlook due to the slowdown in the US, as well as rising risks to the consumer and the housing market, we remain cautious on the currency, even though it’s move much higher than we anticipated. With a lot of upside priced into the CAD and Canadian yields, our preferred way of trading the CAD would be to look for short-term negative catalysts to trade the CAD lower instead of chasing it higher.
by thunderpips
2
GBPAUD Trading according to planThere isn't much to update on the GBPAUD pair, as since our last analysis on April 21, the price has been following our plan in a very precise way: As you see, the similarities with the July - October 2020 sequence have paid off and the price action continues to follow that pattern. We are now at the point where the pair is consolidating around the 1D MA50 (blue trend-line), which is used as the pivot point. The Diverging Lower Lows trend-line should provide the necessary Support to sustain this consolidation until the 1D Golden Cross is formed that will start the new rally towards the top of the long-term Channel Down. The ideal buy can be timed when the 1W MACD makes a Bullish Cross. On the other hand, if the Diverging Lower Lows trend-line breaks, be ready to sell towards the bottom of the Channel Down and the -0.5 Fibonacci extension, and then buy for the long-term. -------------------------------------------------------------------------------------------------------- ** Please support this idea with your likes and comments, it is the best way to keep it relevant and support me. ** --------------------------------------------------------------------------------------------------------
by TradingShot
1