EURAUD – going short..In light of my morning note on the AUD and Brent’s piece overnight – I am going short EURAUD in spot and options with stops above 1.5100 and targeting a move to 1.4800. In addition I have bought 6 week 1.4850/1.4650 put spreads with a RKI on the short strike at 1.4350. EURAUD has been in a fairly well defined channel since April, the support for which comes in at 1.4800 where I will be looking to take back my cash shorts. As mentioned in my morning note, the risk reward for AUD shorts is simply not there at present levels and I expect further policy action out of the PBOC to stabilize the equity rout and promote growth.
** AUD has reaffirmed its old relationship with the global macro environment. Being short AUD is no longer an RBA or Australia trade, but a trade on commodities and China. Given how close we are to the uptrend from the 2001 lows (comes in at around 0.7150) and the likelihood of increased policy response from the Chinese government to stabilize equity markets and promote growth, I am increasingly bullish the AUD. More importantly we are about 35% from the 1.1000 highs and the prior 3 major AUD selloffs were 28%, 42% and 39% for an average of 36%. And finally, the 2008 low in the AUD was the 76.4 Fib support from the 2001 low to 2008 top, and similarly the 76.4 Fib support from the 2008 low to the 2011 top comes in at around 0.7200 bottom line THERE IS A LOT HAPPENING AT IN THE 0.7150-7200 ZONE in the AUD. The risk reward for shorts is simply not there.
the E/A4 short was entered into about 3.5hours ago