AUD/USD lower as the mood darkens with appetite for risk on the ropes

Sentiment has remained sour in today’s Asian session, as it follows on the weak lead delivered by Wall Street. On Wednesday US yields turned higher to break a mere 3-day pullback from multi-year highs and earnings weighed on Tech stocks, earning the Nasdaq 100 its worst daily performance of the year.

Whilst the Asian session started off quietly enough, slowly but surely dark clouds have begun to form to provide an ominous feeling that something could crack. US futures are pointing lower, AUD/USD and the ASX 200 tapped fresh YTD lows and AUD/JPY – a classic barometer of risk - extended its losses for a second day to a 7-day low. USD/JPY has also breached the infamous 150 level either side of the Asian Open as traders try their luck to see if the BOJ bite.

I think the clearest sign that it has all gone wrong is if we see AUD/USD breaks beneath the November low at 0.6270. If you look at the headline risk it has sustained over the past few weeks, it has done well to remain above 63c for most of it. Today’s break to a YTD low could simply be a liquidity purge ahead of its usual reversal higher. But if it can break the November low with momentum, we can safely assume appetite for risk has truly fallen.

There’s a risk that ‘the power that be’ in China may want to pump the market and that could provide a futile burst of risk on, but I suspect it will require a lot more than that to fully revive such sentiment, which means we prefer to fade into minor rallies.

AUD/JPY technical analysis (daily chart)

AUD/JPY is one of those currency pairs that can provide erratic, almost random price action for periods of a time before swiftly kicking into turbo mode and moving in one direction hard and fast. If sentiment falls from a cliff, AUD/JPY is a prime candidate to move sharply lower. Especially if the BOJ intervene to send the Japanese yen broadly higher.

The pair has been mostly rangebound between 96 – 96 since August, and momentum saw a sharp turn lower form 96 yesterday. If sentiment in early Asia is anything to go by, it could be a pair for traders to fade into minor rallies and target the February high around 93.

-- Written by Matt Simpson

Follow Matt on Twitter @cLeverEdge

How to trade with City Index

You can trade with City Index by following these four easy steps:

Open an account, or log in if you’re already a customer

• Open an account in the UK
• Open an account in Australia
• Open an account in Singapore
Search for the market you want to trade in our award-winning platform
Choose your position and size, and your stop and limit levels
Place the trade

This report is intended for general circulation only. It should not be construed as a recommendation, or an offer (or solicitation of an offer) to buy or sell any financial products. The information provided does not take into account your specific investment objectives, financial situation or particular needs. Before you act on any recommendation that may be contained in this report, independent advice ought to be sought from a financial adviser regarding the suitability of the investment product, taking into account your specific investment objectives, financial situation or particular needs.

StoneX Financial Pte. Ltd., may distribute reports produced by its respective foreign entities or affiliates within the StoneX group of companies or third parties pursuant to an arrangement under Regulation 32C of the Financial Advisers Regulations. Where the report is distributed to a person in Singapore who is not an accredited investor, expert investor or an institutional investor (as defined in the Securities Futures Act), StoneX Financial Pte. Ltd. accepts legal responsibility to such persons for the contents of the report only to the extent required by law. Singapore recipients should contact StoneX Financial Pte. Ltd. at 6826 9988 for matters arising from, or in connection with the report.

In the case of all other recipients of this report, to the extent permitted by applicable laws and regulations neither StoneX Financial Pte. Ltd. nor its associated companies will be responsible or liable for any loss or damage incurred arising out of, or in connection with, any use of the information contained in this report and all such liability is hereby expressly disclaimed. No representation or warranty is made, express or implied, that the content of this report is complete or accurate.

StoneX Financial Pte. Ltd. is not under any obligation to update this report.

Trading CFDs and FX on margin carries a high level of risk that may not be suitable for some investors. Consider your investment objectives, level of experience, financial resources, risk appetite and other relevant circumstances carefully. The possibility exists that you could lose some or all of your investments, including your initial deposits. If in doubt, please seek independent expert advice. Visit www.cityindex.com/en-sg/terms-and-policies for the complete Risk Disclosure Statement.

ALL TRADING INVOLVES RISKS. LOSSES CAN EXCEED DEPOSITS.

City Index is a trading name of StoneX Financial Pte. Ltd. (“SFP”) for the offering of dealing services in Contracts for Differences (“CFD”). SFP holds a Capital Markets Services Licence issued by the Monetary Authority of Singapore for Dealing in Exchange-Traded Derivatives Contracts, Over-the-Counter Derivatives Contracts, and Spot Foreign Exchange Contracts for the Purposes of Leveraged Foreign Exchange Trading. SFP is also both Derivatives Trading and Clearing member of the Singapore Exchange (“SGX”). SFP is a wholly-owned subsidiary of StoneX Group Inc.

The information provided herein is intended for general circulation. It does not take into account the specific investment objectives, financial situation or particular needs of any particular person. You should take into account your specific investment objectives, financial situation or particular needs before making a commitment to invest, including seeking advice from an independent financial adviser regarding the suitability of the investment, under a separate engagement, as you deem fit. No representation or warranty is given as to the accuracy or completeness of this information. Consequently, any person acting on it does so entirely at their own risk.

The information does not represent an offer of, or solicitation for, a transaction in any investment product. Any views and opinions expressed may be changed without an update. To understand the risks and costs involved, please visit the section captioned “Important Information” and the “Risk Disclosure Statement”.

The information herein is not directed to, or intended for distribution to or use by, any person or entity who is a citizen or resident of or located in any locality, state, country or other jurisdiction where such distribution, publication, availability or use would be contrary to law or regulation.

StoneX Financial Pte. Ltd. 1 Raffles Place, #18-61, One Raffles Place Tower 2, Singapore 048616. Tel: 6309 1000. Co. Reg. No.: 201130598R.

This advertisement has not been reviewed by the Monetary Authority of Singapore.