Australian Dollar Analysis and Talking Points
AUSTRALIAN DOLLAR FOLLOWING RISK APPETITE
A modest bounce in risk sentiment as equity markets look to close out the week on a firmer note. However, with much of the concerns that have plagued the market showing little signs of abating regarding the slowdown in growth. In turn, this may only be a short term reprieve with the bias remaining a fade on rallies. Nonetheless, high beta currencies that have felt the brunt of the sell-off in equities are higher this morning, AUD/USD up 0.7%. Going forward, risk sentiment will continue to drive price action for the Aussie with the current upside likely to struggle around resistance at 0.6960 and 0.7000 above. What’s more, reports that China will strictly limit citizens from going abroad, suggests that the outlook will continue to look gloomy for antipodeans.
AUD/USD Chart: Daily Time Frame
IG Client Sentiment Signals Stronger Bearish AUDUSD Contrarian Bias
Data shows 77.83% of traders are net-long with the ratio of traders long to short at 3.51 to 1. The number of traders net-long is 3.36% higher than yesterday and 17.76% higher from last week, while the number of traders net-short is 7.01% lower than yesterday and 19.63% lower 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.
Traders are further net-long than yesterday and last week, and the combination of current sentiment and recent changes gives us a stronger AUD/USD-bearish contrarian trading bias.
AUD/JPY RETURNING AS A DEFENSIVE PLAY
Yesterday I mentioned in amidst the recent equity rout, some normality has resumed with the Japanese Yen and Bonds returning as a defensive play. This extends to cross/JPY, which saw a sizeable fallout on the back of the sell-off. As such, fading the rise in cross/JPY would be the favoured play when equities pullback.
AUD/JPY vs S&P 500