Dollar shines in an eventful week in US politics

Contrary to most analyst predictions, including ourselves, the US dollar looks set to close the week higher after an eventful week in US politics. The greenback has surged higher against most currencies except the British pound, which has been supported by the Bank of England dropping its dovish bias amid concerns about overcooking inflation in the UK. In contrast, the euro, yen, Swiss franc and all the commodity majors have slumped versus the dollar. The Canadian dollar has resumed its downward trend amid slumping oil prices, weak domestic data and on the back of a dovish Bank of Canada. Elsewhere, the Reserve Bank of New Zealand cut interest rates in mid-week and warned of more easing steps due mainly to a strong currency and the kiwi has correspondingly sold off.

AUD/USD down despite copper rally

Meanwhile, the Australian dollar fell even though base metals rallied, most notably copper which is having its best week since 1979 with a near 20% surge. This is quite bizarre in my view, given the still-high demand risks in China, which is the world’s largest consumer of copper. So either the Aussie is up to something or Dr Copper: the divergence cannot go on forever in my view. Next week in Australia, there will be some important domestic data to look forward to, which includes the RBA’s policy meeting minutes on Tuesday and the all-important Aussie employment numbers on Thursday. These have the potential to move the Aussie out of its laborious consolidation range.

AUD/USD on the verge of a collapse?

The Aussie is actually on the verge of a collapse, at least that is what the charts indicate. As can be seen below, the AUD/USD is testing its 11-month old bullish trend line and key support in the 0.75555/70 area following yet another failed attempt to breakout above key resistance in the 0.7720 area this week. The Aussie could fall sharply now if support at 0.7555/70 area breaks down, although the first bearish objective at 0.7505 – the 200-day moving average – is not too far from current level. A more import support is the prior swing point at 0.7445, a decisive break below here could send the unit tumbling towards the low 0.70s again. Meanwhile in the event that the Aussie again bounces back here then the key short-term resistance levels to watch are at 0.7630 and 0.7690. But for as long as the 0.7720 level holds, it remains in danger of a sharp drop.

StoneX Financial Ltd (trading as “City Index”) is an execution-only service provider. This material, whether or not it states any opinions, is for general information purposes only and it does not take into account your personal circumstances or objectives. This material has been prepared using the thoughts and opinions of the author and these may change. However, City Index does not plan to provide further updates to any material once published and it is not under any obligation to keep this material up to date. This material is short term in nature and may only relate to facts and circumstances existing at a specific time or day. Nothing in this material is (or should be considered to be) financial, investment, legal, tax or other advice and no reliance should be placed on it.

No opinion given in this material constitutes a recommendation by City Index or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person. The material has not been prepared in accordance with legal requirements designed to promote the independence of investment research. Although City Index is not specifically prevented from dealing before providing this material, City Index does not seek to take advantage of the material prior to its dissemination. This material is not intended for distribution to, or use by, any person in any country or jurisdiction where such distribution or use would be contrary to local law or regulation.

For further details see our full non-independent research disclaimer and quarterly summary.

CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 69% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money. CFD and Forex Trading are leveraged products and your capital is at risk. They may not be suitable for everyone. Please ensure you fully understand the risks involved by reading our full risk warning.

City Index is a trading name of StoneX Financial Ltd. Head and Registered Office: 1st Floor, Moor House, 120 London Wall, London, EC2Y 5ET. StoneX Financial Ltd is a company registered in England and Wales, number: 05616586. Authorised and regulated by the Financial Conduct Authority. FCA Register Number: 446717.

City Index is a trademark of StoneX Financial Ltd.

The information on this website is not targeted at the general public of any particular country. It is not intended for distribution to residents in any country where such distribution or use would contravene any local law or regulatory requirement.