USD, AUD Analysis and News
The bounce back in equity markets, doesn’t appear to be anything more than a short term reprieve. We highlighted yesterday there was a potential for a Turnaround Tuesday, where a fall in the S&P 500 from Thursday-Monday is typically followed by a bounce back on Tuesday. However, this does not mean the overall direction will change meaningfully. A reminder that uncertainties pertaining to the Russian-Ukraine war, growth slowing in China and US tightening of financial conditions continue to plague market sentiment.
With that said, tomorrow’s CPI will be key for market participants, which may well be the catalyst of a more meaningful bounce in equities, should the report print below expectations. Although, this will not shake the markets bias that equities will be faded on rallies.
Fragile Sentiment To Keep USD Firm
USD: Fragile risk appetite remains, in turn, the US Dollar will remain supported on dips. Alongside the fact there are little in the way of alternatives to the US Dollar at present. While today’s economic calendar is relatively light from a data point of view, there is a whole host of Fed speak, which will be closely watched. As it stands, money markets have a 50bps hike in June as nailed on. However, the key question is whether there is appetite for a 75bps move and given the recent market sell-off I suspect the prospects of such move has diminished substantially.
AUD Plunges Below Key Support
AUD:Cyclical currencies felt the pressure from yesterday’s plunge in commodities. Consequently, the Australian Dollar has broken below pivotal support at 0.70. Naturally, this will be the first point of resistance for AUD/USD. Elsewhere, USD/CNH saw a modest pullback, however, this will need to be sustained in order to keep the Aussie afloat. However, with concerns over global growth rising, this will not bode well for the Aussie. Holding below 0.6990-0.7000 raises the risk of a sub-0.69 move for AUD/USD.
AUD/USD Chart Weekly Time Frame
IG Client Sentiment Signals Mixed AUD/USD Outlook
Data shows 75.08% of traders are net-long with the ratio of traders long to short at 3.01 to 1. The number of traders net-long is 2.90% higher than yesterday and 2.87% lower from last week, while the number of traders net-short is 3.21% lower than yesterday and 9.52% higher from last week.
We typically take a contrarian view to crowd sentiment, and the fact traders are net-long suggests AUD/USD prices may continue to fall.
Positioning is more net-long than yesterday but less net-long from last week. The combination of current sentiment and recent changes gives us a further mixed AUD/USD trading bias.