- The AUD / USD is dominated by bulls, the feeling of risk continues.
- Technically, bulls cross the long-term trend line, now what?
AUD / USD is trading at the highest levels since the start of 2020, eyeing the handful of 0.69 after moving from a low of 0.67774 to a high of 0.6895. Bulls seized the market by their horns, tearing apart what would have been difficult levels of resistance, especially given the fragile geopolitical context.
The bulls took advantage of the bearish backdrop and punished the engaged bears, cleaning up their expired stops and this liquidity to push even higher. Based on an analysis of the volume profile, it makes perfect sense for the AUD to return to where the prices were agreed in July and throughout H2 2019.
The sense of risk improved and stocks continued to resist a number of headwinds. US stocks extended their quest for a Fibonacci retracement to 78.6%, stunning the macro-investors who were banking on an outright global depression and the crash of the financial markets.
The US dollar was a major factor in the rebound in the FX, and last week’s COT report showed that long net USD positions moved lower, breaking a nine-week trend. “This reflects the softer tone of the USD in the spot market which is driven by an increased risk appetite,” said analysts at Rabobank.
As mentioned, the bulls brought the bears to the cleaners. Bearish expectations have not yet materialized.
- Again, global stock markets have recovered.
- We have not seen the market blink at the swell of new cases of COVID-19 such as the 300 new asymptomatic carriers reported in Wuhan as the last title.
- The war of words between the United States and China did not translate into a new trade war or subsequent actions such as new tariffs. The rumor that China would violate the rules of phase 1 related to the American purchase of agri ‘was later denied in the last titles. “Chinese companies continue to buy American soybeans according to market rules, without being affected by external factors …
This is proven by the Chinese companies’ purchase of recently harvested American soybeans from Mon, Zhang Xiaoping, country director for China at the US Soybean Export Council, told GT “, reported the Global Times. Bloomberg also reported in an article “American Exporters Selling Soybeans to China Despite Rising Tensions,”US soybean exporters have sold several shipments to Chinese buyers, according to people familiar with the matter, showing that some transactions are still in progress even after Beijing officials ordered a pause in some purchases.
RBA gives green light to further increase AUD
The icing on the cake for the AUD bulls was the blatant complacency of the Reserve Bank of Australia which did not mention the strength of the Aussie which has increased more than 20% against the USD since its recovery from the 2020 lows at 0.55c. This gave the go-ahead for the bulls to track down the 0.70 level and push the barriers when the bears took the hit or potentially reversed their bets.
As noted by analysts at ANZ Bank, the RBA provided an optimistic outlook and noted the improvement in the global state of the pandemic:
In the past month, infection rates have declined in many countries and activity restrictions have been relaxed. If this continues, a recovery in the global economy will begin, supported by both large fiscal packages and significant easing of monetary policies.
The financial markets are more positive about the outlook and not just the stocks:
Overall, the situation on the financial markets has continued to improve, although the situation on certain markets remains fragile. Volatility has decreased and the credit markets have gradually opened up to more companies. ” – RBA.
The Australian economy “is experiencing the strongest economic contraction since the 1930s”, but there are encouraging signs:
It is possible that the depth of the slowdown is less than previously planned. The rate of new infections has dropped significantly and some restrictions have been relaxed sooner than previously thought. And there are signs that the hours worked stabilized at the start of May, after the previous sharp drop. There has also been a recovery in some forms of consumer spending, ‘ – RBA.
Last but not least, the RBA has largely chosen not to buy bonds since the last meeting:
The government bond markets operate efficiently and the yield on 3-year Australian government securities (AGS) is around 25 basis points. In light of these developments, the Bank has purchased government bonds only once since the previous Board meeting, ‘ – RBA.
So now stay AUD bullish?
This train may have already left the station, for now, and it could be catching knives that fall at that time. There is now a two-sided coin, and it will now boil down to the Fed as the markets seek yield.
Although the bearish cases did not happen, it may only be a matter of time before they do. The threat of a global depression is real, as are the breakdown in relations between the United States and China.
Had it not been for the American riots, US President Donald Trump may have had more time to respond correctly to the Hong Kong scenario and elaborate on China’s treatment of COVID-19 and the consequences that have resulted from it. The press conference on China has been dismissed by the markets, but it remains very much on Trump’s agenda and is not a closed book. For now, he must save his presidency.
The pandemic is likely to have lasting effects on the global economy and Australia – so we are not out of the woods yet.
AUD / USD levels
The currency has returned to where the markets agreed on prices for the whole of the second half of 2019. It will take a systemic change in the AUD markets to take a bullish extension at this point . The dollar may well be ripe for an upward correction, according to the following analysis:
AUD / USD to test trend line support
In the event of a default below the trend line, the bear could aim for a 61.8% retracement of the previous push towards the previous resistance structure. On the other hand, if the trend line continues, it is a blue sky from here for a new cyclical uptrend. The RBA may well be the best bet in town, especially if the “Federal Reserve has no choice but to go further to save its economy from collapse.”