The commonalities in AUD/USD to its cross pairs are all sit on vital supports and includes AUD/USD. All cross pairs are overbought yet AUD/CAD and AUD/USD are oversold. AUD/CAD in the last report negatively correlated to AUD/USD at minus 59% but now correlates solidly at + 85%. AUD/JPY in the last report negatively correlated to AUD/USD at minus 67%, now negative 90%. AUD/CHF and AUD/EUR are most overbought in relation to all cross pairs. AUD/USD primary drivers are AUD/CAD and AUD/NZD because its ranges are far wider than AUD/USD and remainder cross pairs.
AUD/EUR is overbought almost to uppermost extremes. AUD/JPY and AUD/NZD remain negatively correlated to AUD/USD at minus 90% and minus 56%. AUD/CHF, AUD/CAD and AUD/EUR positively correlate to AUD/USD at +85%, + 85% and + 87%. AUD/USD positive correlation to AUD/EUR is responsible for AUD/EUR overbought extremes.
A correlation is a market indicator to send a message in regards to current prices are misaligned, misplaced, mis located and must eventually align to their rightful underlying pair. AUD/JPY and most JPY cross pairs except GBP/JPY align to USD/JPY. In range markets, mis aligned prices and correlations has potential to last for many months and under-perform in price moves as seen in the examples of AUD/JPY and AUD/NZD. In AUD/USD and cross pairs, more range bound markets are expected as has been the order for AUD over many, many months. Range markets hardly change a correlational effect or price under-performance until price breaks a significant point.
AUD/USD. Why AUD saw corrections in the low 0.7700’s and high 0.7600’s is because of the failure to break above 0.7801, a line dated not only to 1999 but a stasis line due to its inability to move over AUD’s range bound markets. The point at 0.7801 remains the big break level in order for AUD to move significantly higher to target easily 0.8100’s. The line at 0.7801 however lacks any expected break anytime soon because far overbought becomes the reality on any approaches to middle 0.7600’s and low 0.7700’s.
Current overbought and sell points from the 0.7612 close begins from 0.7628 to 0.7650’s. Any price above 0.7650 begins overbought extremes. Vital in between 0.7628 and 0.7650’s is current 0.7642 because this point is a range level . Range points are more important than market level.
On the downside is found supports at 0.7569 and 0.7578 and must breaks to see AUD achieve 0.7534, 0.7524 and 0.7520. Most important supports for AUD are located at 0.7486 and 0.7520. Why 0.7520 is because its a range point. A break of 0.7520 would see AUD far lower over time. The points at 0.7569 and 0.7578 decides AUD’s fate over coming days as both lines will travel higher as AUD rises to provide supports much higher than current. AUD/USD above 0.7569 and 0.7578 remains oversold.
AUD/CHF. From current close at 0.7542, AUD/CHF is far overbought from MA’s, from price distributions and any perspective viewed. A correction could easily take AUD/CHF back to 0.7470’s. What drives AUD/CHF are lines at 0.7399 and 0.7410. First short targets are found from 0.7507, 0.7503 and 0.7501. The upside in AUD/CHF is not only limited but longs not recommended but an overall sell rally approach to the week.
AUD/CAD. From current 1.0004, AUD/CAD was traditionally the primary driver to AUD/USD but has since experienced revolving negative to positive correlations therefore AUD/CHF constant positive correlations informs more superior to AUD/USD direction. AUD/CAD is oversold to middle range overall because 1.0004 lies just above most vital break points at 0.9962, 0.9935 and 0.9894. A break at 0.9864 targets overall 0.9611 yet far far down the road as traditional AUD/CAD was never a big market mover but is a traditional range currency pair. To see a run to 0.9962 and 0.9935 then breaks must be seen at 1.0004, 0.9976 and 0.9970.
On the upside, overbought and sell points begin at 1.0020 to 1.0049 to 1.0068. Sell point targerts back to 1.0005, 1.0000 and 0.9976.
AUD/NZD. From current 1.0745, AUD/NZD is overbought and any drops targets first 1.0700’s then 1.0680’s to 1.0660’s and 1.0648. The current and most immediate targets is 1.0697. The main break point to see lower is located at 1.0669. AUD/NZD sits on base of supports at 1.0510, 1.0569 and 1.0611. AUD/NZD will struggle to break lower at 1.0621 to 1.0636.
On the upside , AUD/NZD will struggle to break higher at 1.0812 and 1.0820’s to 1.0835 because 1.0871 continues to drop lower on AUD/NZD and its the main driving line. For the week, AUD/NZD is a sell rally strategy.
AUD/JPY. From current 79.44, AUD/JPY is trapped between vital break points at 81.19 above and 78.56 below. A break below 78.56 targets 77.66 in the immediate term. A run to 78.56 must see breaks at 79.05 and 78.81. Below 79.05, AUD/JPY enters a most dangerous neutral zone as 79.05 must clear to go higher while 78.56 provides solid support.
Intraday, AUD/JPY is overbought and sell on rallies for now is recommended. Most important points are 79.45, 79.63 and 79.71. AUD/JPY has potential to travel far higher but a correction is warranted. Above 81.19 comes next 81.32, 81.64, and 82.48.
AUD/EUR. The close at 0.6943 in AUD/EUR is highly overbought. Most important supports are located at 0.6794 and 0.6786. Why AUD/EUR is overbought and why its correlation of 90% to AUD/USD is because EUR/USD lost its correlation to EUR/AUD. Further AUD/EUR is far overbought because EUR/AUD is far oversold.
The close of AUD/EUR at 0.6943 is actually EUR/AUD 1.4402. The supports in AUD/EUR at 0.6794 and 0.6786 is actually EUR/AUD resistance at 1.4718 and 1.4736. AUD/EUR for the week will travel lower while EUR/AUD will travel higher.
AUD/EUR is far more overbought than is EUR/AUD oversold and the difference is about 100 pips. The side issue is once Asia trading ends and shifts to Europe, EUR/AUD is a most vital pair to AUD/USD and many times EUR/AUD due to its wide ranges drives the AUD/USD and EUR/AUD relationship.
The bottom most vital in EUR/AUD is located at 1.4066 and translates to AUD/EUR 0.7109. Upper targets for EUR/AUD are located 1.4581, 1.4598 and 1.4604. EUR/AUD targets translates to AUD/EUR 0.6858, 0.6850 and 0.6847.
EUR/AUD travels higher by breaks at 1.4424, 1.4450, 1.4474, 1.4493, 1.4516 and 1.4521. All translates to AUD/EUR 0.6932, 0.6920, 0.6908, 0.6899, 0.6888 and 0.6886.
Downside most oversold in EUR/AUD at 1.4399 and 1.4390 translates to AUD/EUR 0.6944 and 0.6949. The strategy is buy dips in EUR/AUD.
Brian Twomey, Inside the Currency Market, btwomey.com