Australian dollar over sold

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I am not walking away from my call on May 9th that the Australian dollar is going to head toward 90 cents but there seems something wrong with today’s very aggressive selling, which has knocked the Aussie all the way to a low of 0.9742. In part, it is broad based USD strength in Asian trade today:

  • Gold is off 1.15% to USD 1559.75 oz
  • the Kiwi Dollar is off 1.23% to 0.7516
  • the Hang Seng is down 1.73% to 18708
  • ASX 200 is down 1.07% to 4077.3 and
  • S&P 500 futures in night trade are off 0.5% to 1308.20

So you’d have to say that things are going my way. Even though comments about the potential Greek exit from the former Greek PM overnight is what ignited the reversal of fortune for the Aussie and other risk trading assets, it is the rerating of global growth that is really kicking the Aussie hard.

My tactical pieces over the weekend, that we might get a bit more of a bounce, proved incorrect. This is a simple a lesson to remember along the lines of old Jesse Livermore axiom that in a bear market just be bearish.

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And it is a bear market for the Aussie. Here is the chart I used for the 90 cents piece on May 9th:

And here is how this chart looks now:

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The trend line goes back to the start of the rally in 2009 and as this is a weekly chart the break is decisive in the overall direction of the market – which is now biased lower.

Still, I am not fighting my own call on the basis of short term oversold conditions and, as a trader, I can see a short term trade in catching the falling knife and buying for a bounce.

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A USD Index close tonight above 82.00 and a euro close below 1.2640 would, however, tell us all that the run to 0.9430 has begun.

Good Luck but remember the disclaimer below please.

Greg McKenna

www.twitter.com/gregorymckenna

Please remember these are not recommendations for you to trade these are my views and I have my risk management tools and risk parameters that you do not have access to. Thus, this blog is for information only and does not constitute advice. Neither Greg McKenna nor Lighthouse Securities has taken your personal circumstances, objectives or financial situation into account. Because of this you should, before acting on this information, consider its appropriateness, having regard to your objectives, financial situation or needs.