This text is from blog famous currency strategist Joel Kruger .
ALREADY PRICED IN – A lot of you out there have been scratching your heads with the performance in the Australian Dollar of late. Many of you have been wondering why AUD/USD is still so well supported despite this latest 25bp RBA interest rate cut to 3.00%. While I have been perplexed with the medium-term outperformance in AUD/USD, I am actually less confounded with this latest short-term price action. First off, today’s rate decision was already all but priced into the market before the RBA actually announced. As such, with market participants already prepared for the cut, there was simply no room for Aussie downside post announcement. Moreover, I would actually argue that we have seen Aussie underperformance in recent trade. Although AUD/USD has held up nicely, “held up” is really all we have seen with AUD/USD, despite a very notable surge in EUR/USD over the past several days. If we take a look at cross rates like EUR/AUD and GBP/AUD, it becomes quite evident that the Australian Dollar has in fact been underperforming.
See forex technical analysis video made by Joel :
CHARTING THE AUSTRALIAN ECONOMY
BUT LOOK AT THIS MISERABLE DATA – For me, the more important development has been on the Australian economic data front. The RBA rate cut was already well priced in last week, so this week’s slew of discouraging data should only serve to reinforce the fact that the Australian economy is slowing down at a faster rate than many thought it would. This week alone we have seen weakness in retail sales, manufacturing PMIs, the current account and building approvals. At this point, I am still broadly bullish the US Dollar and bearish on risk. As such, with EUR/USD and global equities having already benefitted from a considerable bounce over the past several days, the risks seem tilted for a reversal on Tuesday or Wednesday. Once this reversal starts to play out in these markets, you can expect to see an accelerated deterioration and continued relative underperformance in the Australian Dollar which ultimately opens the door for AUD/USD declines. Look for a break back below 1.0400 to help confirm outlook and accelerate.
WORLD OF THE FORMER SAFE-HAVENS – Moving on, EUR/CHF has managed an impressive rebound over the past 24 hours, and it looks as though a fresh higher low could now be in place at 1.2030 ahead of the next major upside extension beyond 1.2185. Fundamentally, the cross rate has been backed by the well advertised 1.2000 SNB defense, and this has unquestionably helped to keep the market supported over the course of the past 12 months. I contend there is plenty more room for upside here, and would be looking for rallies to extend into the 1.2500 area over the course of 2013. Finally, I continue to be patient with USD/JPY and am very well positioned here. Ideally, I would like to see a pullback to previous resistance at 80.65 so that I can build on an existing long, but should the pair fail to pull back this far, I will be fine to see my profits run as the market positions for a retest and break of the 2012 high at 84.20.
