AUD/USD and OCR: levels, Ranges, Targets

To understand AUD/USD tight ranges and containment inside a 7 month parameter between 0.7300’s to 0.7700’s, OCR is the first problem because its far to low and oversold. The second conundrum is AUD/USD Correlations over 7 months remained constantly negative 70% to 90% to AUD/JPY and sustained + 80% to + 90 to AUD/CHF. AUD/NZD ranged on either side of 50% while AUD/CAD shared a weekly and revolving positive to negative relationship. AUD/USD not only lacks ability to run correctly with its cross pairs but the last aspect to AUD/USD ranges is the economic front.
While + 0.5% in Retail Sales was positive, Food accounts for a vast majority of the positive reading as Department Stores were negative 0.2% as well as Clothing, Footwear and Personal Accessories at minus 0.1%. The overall trend as reported by Australia’s Bureau of Statistics is down. Business Investments are down 4.9% for the quarter and 6% for the year and will weigh on Wednesday’s GDP release.
This week’s possible range break will be determined by Tuesday’s RBA Statement, Wednesday’s GDP as well as Import / Exports, Inflation, Factory Orders and Current Account.
AUD/USD trades between 1 and 2 year monthly averages from 0.7520 to 0.7429. From Friday’s close at 0.7452 and inside the current range, vital resistance and must breaks to go higher are located at 0.7777, 0.7770, 0.7739. Higher means next most important inflection point at 0.7825. Upper ranges are seen only upon breaks at 0.7530, 0.7588, 0.7604 and 0.7674.
Below points begin at 0.7433, 0.7406, then 0.7360 and 0.7355, 0.7317, 0.7311, 0.7254 and 0.7215. AUD/USD ranges from 0.7700 to 0.7200 are defined by 0.7500’s in days ahead.
From a daily perspective 0.7500 and 0.7588 are vital breaks and 0.7461 as a must break point for any shot to 0.7500. Failure to break 0.7500 then 0.7500 will continue its slow drop to take AUD/USD lower.
OCR from 1.62 at the 1 month level fails not only to correlate V AUD/USD at the 1 and 2 year monthly averages but its oversold. At extremes, OCR will fail to see 1.25 as this is not only overdone but 1.62 runs into 1 month OIS at 1.49 and 2 month OCR at 1.71. As was seen in last detailed posts, AUD exchange and interest rates remain severely misaligned. Lower OCR by the RBA is not seen from money market rates yet a drop would leave OCR at all maturities in further oversold and a continued misalignment to AUD/USD. Trading ranges would change but not misalignments. In sync interest and exchange rates are found only in higher OCR.
From 1.62, next OCR break at the 1 month point is located at 1.86 then 2.03 and 2.23 and travels higher to 3.97 at the 10 year monthly average. Current 1.62 trades below every average from 1 to 10 years. Targets are located from 1.86 to highs at 2.23.

 

Brian Twomey, Inside the Currency Market, btwomey.com

EUR/USD V DXY Monthly: Levels, Ranges, Targets

Current DXY price for December trades above its 1 and 2 year monthly averages while EUR/USD trades well below its correspondent means. Written in last month’s post was DXY was on the verge of a massive breakout higher to last years in the future. Trump’s election provided the impetus to take EUR/USD to 1.0518 lows and DXY to 102.15 highs.
DXY from current 100.75 trades well above its 1 and 2 year monthly averages at 96.93 and 96.54. November averages rose 37 and 18 pips from 96.56 and 96.36. DXY’s average December range is located from 289 to 307 pips and equates to 15.3 pips per day inside a 20 day trading month. Range factors to 103.82 highs to 97.68 lows. DXY’s range translates to EUR/USD 1.0888 highs to 1.0438 lows.
DXY’s top channel point is located at 103.20 yet from current 100.75 headwinds exist from 101.93, 101.72, 101.52, 101.25, 101.17 and 101.02. DXY must break 101.93 for 103.20 consideration. First two vital points above are found at 100.79 and 100.91.
Bottom points are located at 100.65 and 100.25 then 99.71, 99.64, 99.41, 99.34 and 99.29. Overall range to factor to the averages is located from 99.71 to 101.93 for a 222 pip range. Any drops in DXY is a correction inside a larger and lasting uptrend.
EUR/USD 1 and 2 year monthly averages are located at 1.1093 and 1.1155. Average range is located from 212 to 225 or 11.25 pips per day and factors to 1.0888 highs to 1.0438 lows.
From current 1.0663, next above for EUR/USD begins at 1.0763, 1.0798, 1.0807, 1.0825, 1.0859, 1.0878, 1.0933 then 1.1023 and 1.1057.
Below supports begin at 1.0661, 1.0664, 1.0618, 1.0587, 1.0578 then on to 1.0479, 1.0405, 1.0319 and 1.0303. Bottom channel is located at 1.0100’s and 0.9800. EUR/USD was introduced in 1999 at 0.8600 and skyrocked to 1.57 highs in 2006/2007. Over time, EUR/USD has every ability to travel back to parity as the trend lines continue to drop every month. Any price rises are corrections inside a continued downtrend.
From a daily perspective, vital break points are 1.0852 and 1.0705. EUR/USD must break 1.0852 to travel higher on a further break of 1.0705.
EUR/USD’s larger view is the struggle between overbought vs oversold in the daily price distribution. This fight is seen for example in overbought 5 and 10 day averages V severely oversold 200 and 253 day averages.
Overall, EUR/USD price is severely low and on the floor yet no reason exists for EUR/USD to break higher as the FED threatens to raise Fed Funds. Should Yellen not raise in December as expected, EUR/USD has every ability to skyrocket higher. Best strategy is sell the 1.0700 highs and long on the 1.0500 to 1.0400 lows.

 

Brian Twomey, Inside the Currency Market, btwomey.com