Aussie dollar under pressure before Fed meeting

Advertisement

by Chris Weston

A quick look at the technicals on AUD/USD ahead of tonights FOMC meeting.

Firstly, the pair failed to re-take the former uptrend on June 12 and is now reverting to the mean (20-day MA) after closing two standard devations from this average (or the top of the Bollinger band). This puts the 20-day average in play at 0.9313 and judging by the fact it is starting to turn higher we could see buyers here. The 20-day seems to be important now for the bulls.

A break of the 20-day could see the lower Bollinger being tested in the short-term, which also happens to converge with the 200-day MA and series of lows through May. Stochastics have broken through the 20 level (although could still give a failed signal), so I am watching this oscillator as it could indicate a deeper sell-off.

image002
Advertisement

Generally in a sideway trading market Bollinger bands are excellent ways of playing this market condition.

If you look at the second chart (from Citigroup) it shows a fairly compelling chart using a yield spread.

Here they aggregate the yield on the Aussie 2 +5+10 year bond and then subtract the total of the same maturity US treasury. In theory the greater the premium seen in the Aussie bond market, the greater inflation forces seen and thus its more compelling to hold AUD’s over USD’s.

Advertisement

This chart suggests AUD/USD should actually be trading sub 90c.

image004

I suggested buying AUD/USD last week at 0.9350 (the 38.2% retracement of the recent rally), but price has breezed through this level, so I have closed the positions (given the failure of any bounce). I will look to see if ther pair finds buyers at the 20-day, otherwise there are signs the pair could head to the lower Bollinger.

Advertisement

The break higher in US yields seems be getting the USD bulls fairly excited.

tnx