Investors Focusing on Australian Economy

The Australian Dollar could be looking at a sharp sell-off as signs are out there that investors are focusing more on the Australian economy than the higher yields offered by the market. Even the stock market rally on Wednesday could not encourage risk hungry traders to go after the higher yielding AUD USD. This is clearly as sign of developing weakness and is likely to trigger further downside pressure as traders are shifting their needs from return on capital to return of capital.

News that Australian inflation fell to 2.5% after a three month increase of 3.7% sent a message to investors that the Reserve Bank of Australia may be poised to take aggressive action to revive the economy. Expectations are for the RBA to do all it can to stimulate the economy including additional stimulus spending, quantitative easing or an intervention.

Last week’s news that China’s economy was contracting and that exports were falling is still casting a bearish pall on the Aussie. Wednesday’s report that showed Japanese exports had fallen for the sixth straight month compounded the bearishness.

The fundamentals are pointing toward lower markets but the charts still indicate the market is in an uptrend. This means that in order to attract fresh selling pressure the AUD USD has to fail on the next retracement that tests the top at .7326.

The Australian Dollar could be looking at a sharp sell-off as signs are out there that investors are focusing more on the Australian economy than the higher yields offered by the market. Even the stock market rally on Wednesday could not encourage risk hungry traders to go after the higher yielding AUD USD. This is clearly as sign of developing weakness and is likely to trigger further downside pressure as traders are shifting their needs from return on capital to return of capital.

News that Australian inflation fell to 2.5% after a three month increase of 3.7% sent a message to investors that the Reserve Bank of Australia may be poised to take aggressive action to revive the economy. Expectations are for the RBA to do all it can to stimulate the economy including additional stimulus spending, quantitative easing or an intervention.

Last week’s news that China’s economy was contracting and that exports were falling is still casting a bearish pall on the Aussie. Wednesday’s report that showed Japanese exports had fallen for the sixth straight month compounded the bearishness.

The fundamentals are pointing toward lower markets but the charts still indicate the market is in an uptrend. This means that in order to attract fresh selling pressure the AUD USD has to fail on the next retracement that tests the top at .7326.

James A. Hyerczyk has been actively involved in the futures markets since 1982. He has worked in various capacities within the futures industry from technical analyst to commodity trading advisor. Using W. D. Gann Theory as his core methodology, Mr. Hyerczyk incorporates combinations of pattern, price and time to develop his daily, weekly and monthly analysis. His firm, J.A.H. Research and Trading publishes The Forex Pattern Price Time Report... More

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