AUD/USD: Levels, Ranges, Targets

The current 40 point inverted yield curve signifies not normalization nor a smart move to raise Fed Funds but equates to economic trouble ahead for USD. Economic data should begin to deteriorate as a result of the inversion if past is prologue. Typically, inversions experience recession in 3 to 6 months.

The 2 most vital metrics to follow are Housing and Leading Economic Index. Housing typically turns down far faster than the Leading Economic Index and its the first warning to trouble. The Leading Index must turn down 3 times in succession in order for further recession confirmation. Currently the Leading Index is up. Yet GDP at 1 and 2% over years is not exactly boom times so possibly a new definition of recession is warranted. What’s recession is invested money fails to earn its proper yield return.

If the ECB ever raised interest rates then consideration must be given to Denmark, Sweden, Switzerland and Norway as those nation’s interest rates are currently priced below Europe. A raise in Europe forces those nations to also rise in order to maintain the current corridors. The assumption is Europe is truly normalizing and so far its under question despite Draghi’s words.
What forces AUD/USD higher is continued range pressures. The only direction for AUD is up to relieve the problems. AUD/USD is currently fighting against overbought prices Vs the need to travel higher.

The further poblem is AUD lacks a daily range and its stuck inside tiny channels otherwise Range pressures would relieve itself much sooner. Instead, slow price grounds continue for AUD. Below supports are located at slow riser 0.7536 and 0.7528 vs massive resistance at 0.7791. The 0.7536 Vs 0.7791 showdown is on the way. AUD lacks current ability to break 0.7536 yet 0.7650’s, AUD is miles overbought.

AUD/USD’sfurther containment problem is its location over the past month to trade directly in between its Correlation Counterparts AUD/EUR and AUD/CHF. The most significant marriage is found between AUD/CHF and AUD/USD. AUD/CHF nor AUD/EUR contains the same range pressures as AUD/USD therefore AUD/USD must lead AUD/CHF and AUD/EUR.

Currently, AUD/CHF to travel higher faces headwinds at 0.7400 and 0.7447 from current 0.7347 and its a further roadblock to AUD/USD higher. AUD/EUR is trapped at higher 0.6700’s. The most significant point is 0.6802 and translates to EUR/AUD at 1.4701. AUD/EUR currently provides vital supports for EUR/AUD at 1.4630 and 1.4701. Overall, AUD/EUR lacks a significant break point from current prices and is currently wandering around and again fails to assist AUD/USD’s range dilemma. The most vital for AUD/EUR translates to EUR/AUD 1.5200’s from current 1.4800’s.

The way to handle this is to look for EUR/AUD at its significant point at 1.4890 but this assumes AUD/EUR drops to 0.6714 today and next days, its not likely.

Our strategy over many many days for AUD/USD and all AUD pairs has been quick in and out day trades. Until the situation clears, this will be the continued strategy.

Brian Twomey

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