Macro Morning: How high for the Australian dollar?

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The big question for this week is whether the Aussie short covering rally can persist if the euro and sterling’s rally is going to fade and may have topped out on Thursday.

It is an interesting question because we know that there was a lot of buying in the Aussie last week after it made a new low for this run at 0.8846 which was just 16 pips above the implied low of the big old down channel the Aussie is in which came in at 0.8830 last week.

Indeed, data from the CFTC showed that the speculative community got shorter into the low making a new all time high for shorts above 74,000 contracts. This data, released Saturday morning Asian time was for the close of trade Tuesday night in the US which is after the Aussies rally started so at some point on Monday last I’m guessing the market was even more heavily short Aussie dollars. So it’s no surprise the Aussie rallied.

aud, audusd, australian dollar, australian dollar price quote, audusd daily

The question for me this week is whether or not the Aussie, unsupported by local data which was weak and likely to be weak again this week with the release of the NAB Business Survey, can rally back up to the top of the 90-93.50 box it has clawed its way back inside. The technicals and positioning suggest as much but for me it is just getting closer to the sell zone again.

A little bit of reality crept back into FX markets on Friday after a weird week when the euro and sterling showed baffling strength against a USD that was clearly just a bit too long allowing the market to hunt US dollar longs. Indeed the euro, sterling and Aussie are all a bit lower in early Asian trade this morning in a continuation of Friday’s trade.

The key for me is that even though the data in Europe and the UK was better than expected last week the data in the US was still strong and the chances of a taper are growing if Pianalto and Fisher have anything to say about it. Both of them gave the distinct impression that the taper is only a matter of time and while both reiterated it is data dependant they left us with the real sense that it is coming and just a question of whether it is September or December. Which is why US equities are struggling a bit.

But before we get to stocks the euro looks like it might have topped at the top of the box it has been trading in as you can see in the chart below.

eur, eurusd, euro, euro (eur) price quote daily

In other markets US equities were lower across the board but off their lows with the Dow closing down 0.47%, the Nasdaq off 0.25% and the S&P 500 fell 0.38% to 1691 and it looks a little weak. Strangely though European stock markets didn’t care about the weakness in the US and were stronger across the board with the FTSE up 0.82%, the DAX rose 0.24%, CAC 0.31%, FTSEMIB was 0.24% higher and the IBEX35 rose 0.74%.

On commodity markets copper was on a tear up 1.3% to $3.31 lb which is more than 8% higher than the low from a month or two ago. Silver was up more than 2 and crude was up 2.49% and back above $106 Bbl. Our friends the Ags all lost more than 1%.

On the data front the Singaporean GDP is the highlight for me today along with the Korean export and import price growth.