AUDUSD to join the risk rally

Regular readers will have noticed that we frequently rely on Intermarket Analysis to unravel the jigsaw puzzle of interconnected markets. Looking back over the past 18 months, it can be observed several key markets put in place medium term highs at the end of 2017, start of 2018, before a volatile 12 months ensured.

Some of the markets that peaked at that time which include the S&P 500, the Nikkei, the ASX 200 have since recovered all lost ground and made new highs. A handful such as the Shanghai composite, the DAX, Gold and even Bitcoin, have enjoyed strong rallies during 2019 although remain below the peaks of late 2017, early 2018.

One risk market that has defied this trend is the AUDUSD, which remains near to lows trading in a holding pattern between .7000c and .7200c. In recent months, it has denied the expectations of those looking for a move into the highs 60’s, as the weight of falling home prices and indebted households, have led to calls for the RBA to cut interest rates.

Likewise, the AUDUSD has ignored those calling for a rally due to the Federal Reserve dovish back flip in January, combined with an anticipated end to the U.S. – China trade war. More recently, it shrugged off the stronger than expected Chinese manufacturing data in April, which prompted further gains in the Shanghai Composite, iron ore and the ASX200. Not to mention, better than expected domestic data this month including a bounce in retail sales and housing finance data.

My view is that break is looming and when it does the AUDUSD will follow the lead provided by the bounce viewed in other risk markets. To clarify, a break above downtrend resistance and recent highs .7140/50 would be an initial indication a deeper rebound has commenced and cause to consider long AUDUSD trades. A daily close above the 200-day moving average at .720, would be further confirmation that a move towards .7400c is underway.

Source Tradingview. The figures stated are as of the 9th of April 2019. Past performance is not a reliable indicator of future performance.  This report does not contain and is not to be taken as containing any financial product advice or financial product recommendation

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