AUDUSD: Starting the week at 6 year lows. Heading towards major 0.7130 trend support?

The extremely soft Caixin China manufacturing PMI was the catalyst that broke the back of the Aud on Friday, causing it to head down to a low of 0.7260, before a mild bounce into the end of the US session, assisted by some soft US data which put the US$ under a little pressure of its own.Commodities had another tough day, although Copper did manage to stall its recent losses (Brent crude -1.14%, WTI -0.8%, Aluminium +0.5%, Copper +0.1%, Gold +0.3%), but the outlook is not encouraging.

This week sees some secondary data, although much of the focus will be again be on commodity prices, which as I said, do not look at all healthy and in the medium term will continue to be a drag on the Aud. The main event risk will come from the FOMC Meeting (Wed) where a hawkish Fed would put a further bid tone under the US$, keeping the downside pressure on commodities and on the Aud as yield spreads continue to contract..

Technically, things do not look positive, and having finished the week below the 0.7285/90 support, the way looks open to much lower levels with the 4 hour charts suggesting little relief to the topside. There is very little support until we get to the monthly charts, where the next target will be at the very strong level at around 0.7200, where two important Fibo levels are lining up (0.7210: 61.8% of 0.4773/1.1082 and 0.7180:76.4% of 0.6006/1.1082) and which could appear on the horizon rather quickly. Taking some profit on short positions near here, looking to re-sell into any potential bounce seems to be a plan. If wrong, and the support does not hold, then the Aud is on its way to test the major rising trend support from Sept 2001 – joining the Sept 2009 low,-  currently at 0.7130.

The topside looks capped at 0.7300, although maybe we should allow the possibility of a return to 0.7350. If the Fed turn out to be a little dovish on Wednesday then the US$ will come under pressure, giving the Aud a reprieve which could see a further squeeze towards  at 0.7375 and possibly at 0.7400, above which will run towards Thursday’s high at 0.7416. I don’t think we are likely to get close to this, but if wrong, further gains would take the Aud towards 0.7430 (minor) and the weekly high of 0.7448.

Any significant rally appears to be a decent sell opportunity and as I have droned on about many times before I suspect that eventually 0.7000 will eventually appear on the horizon and, in the longer term, so will 0.6000http://www.fxchartsdaily.com/audusd-aud-heading-0-6000-check-monthly-chart/. If correct, this is going to be some way off (2016/17?), so don’t get too excited yet as the carry will be expensive!

Economic data highlights will include:

M:

T: NAB Business Conditions/Confidence

W:

T: Building Permits, Import/Export Price Index

F: Private Sector Credit

S: China NBS Mfg, Non Mfg PMIs.

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