Published 31/10/18...
Fundamental bias = Bearish .
Down trending sin Jan2019 mainly due to the slowdown in neighboring china. Slowdown in China began in advance of the US-China Tariffs, however the initial impact of the tariffs dented confidence globally adding to the effect. We've yet to see any impact of tariffs in hard China data, if anything in the short term its boosted exports as companies front run but this is a transitory effect. China growth outlook for the coming months is negative and forecast to get worse as tariffs impact Chinese companies...Key event to watch is the G20 summit at the end of Nov where Trump and Xi will sit down to discuss the situation, US has already said if no progress is made at these talks then US will add 10% tariff on the remaining $250Bn of Chinese imports AND as of Jan2019 the current 10% tariff on $200Bn will be raised to 25%. This will be negative for Chinese economy (and for global economy - effecting high beta currency), which will add further downside to $AUD.
On the Aussie side, Q3 inflation data missed expectations, the headline CPI 0.32% for the September quarter came in at 0.4% and the yearly rate eased to 1.9% from 2.1% y/y in Q2. Meanwhile, the annual pace of the average of the core measures decelerated further to 1.7% in Q3, down from 1.8% y/y in Q2 and 2.0% in Q1 2018. The six-month annualized growth in core inflation was only 1.5%, which was well below the bottom of the RBA target band and the slowest pace since September 2016. RBA inflation target is 2% - 3% and due to this the RBA remain hold for their monetary policy , future outlook is unchanged - bearish .
$USD is strong recently. This is due to a variety of factors, mainly I think the Feds forward guidance is very hawkish. raising rates sine 2016 and continue to raise, analysts expect a further 25bps hike in Dec2018 which would put the rate at 2.5% from 2.25%. UST -0.48% yields making new yearly highs although coming off a touch due to US equity selloff in Oct, hitting a high of around 3.25%, if yields continue to rally will add even more strength to the US Dollar 0.15% . USD strength can also be attributed to a weaker Euro -0.25% due to the dire situation in Europe, as 50% of the DXY 0.15% ( dollar index 0.00% ) is Euros. The way I see it the only thing that could stall and reverse the USD is, the fed taking their foot off the break by taking a more dovish stance, and a pick up in European growth and de-escalation in European politics.
Other things to note: Rate differential between UAD and US is in US favor by 75bps, which isnt much but in US favor none the less. And the yield spread between AU10s and Tnotes is also in US favor and more importantly widening, since the beginning of the year.
Technically: Since the beginning of the downtrend, Secondary pullbacks to fib618 has worked well. In recent price action had the leg lower with minor pullbacks and now market is consolidating and looking to produce a secondary pullback. Fib618 lines up to the falling TL connecting the highs and with a bit of market structure and the 7200 handle in the mix.
Each leg lower can be between 250 and 300 pips and that would put price around the September 2018 low, which is my final T3 for the trade and with a 40 pip SL makes the trade 7 to 1 returns. Taking profits along the way as always, managing risk and tightening stop loss. T1 = 7105 T2=7005 T3=6910
Other points: Watch out for the 0.70 handle is a key physiological level where price may stall. Need this level to break and move lower.
Sentiment for this arket is clearly bearish , so when in the trade monitor news releases and see how market reacts. market should sell off sharply on negative news and shrug off bullish news. If this reverses then re think the trade.
Fundamental bias = Bearish .
Down trending sin Jan2019 mainly due to the slowdown in neighboring china. Slowdown in China began in advance of the US-China Tariffs, however the initial impact of the tariffs dented confidence globally adding to the effect. We've yet to see any impact of tariffs in hard China data, if anything in the short term its boosted exports as companies front run but this is a transitory effect. China growth outlook for the coming months is negative and forecast to get worse as tariffs impact Chinese companies...Key event to watch is the G20 summit at the end of Nov where Trump and Xi will sit down to discuss the situation, US has already said if no progress is made at these talks then US will add 10% tariff on the remaining $250Bn of Chinese imports AND as of Jan2019 the current 10% tariff on $200Bn will be raised to 25%. This will be negative for Chinese economy (and for global economy - effecting high beta currency), which will add further downside to $AUD.
On the Aussie side, Q3 inflation data missed expectations, the headline CPI 0.32% for the September quarter came in at 0.4% and the yearly rate eased to 1.9% from 2.1% y/y in Q2. Meanwhile, the annual pace of the average of the core measures decelerated further to 1.7% in Q3, down from 1.8% y/y in Q2 and 2.0% in Q1 2018. The six-month annualized growth in core inflation was only 1.5%, which was well below the bottom of the RBA target band and the slowest pace since September 2016. RBA inflation target is 2% - 3% and due to this the RBA remain hold for their monetary policy , future outlook is unchanged - bearish .
$USD is strong recently. This is due to a variety of factors, mainly I think the Feds forward guidance is very hawkish. raising rates sine 2016 and continue to raise, analysts expect a further 25bps hike in Dec2018 which would put the rate at 2.5% from 2.25%. UST -0.48% yields making new yearly highs although coming off a touch due to US equity selloff in Oct, hitting a high of around 3.25%, if yields continue to rally will add even more strength to the US Dollar 0.15% . USD strength can also be attributed to a weaker Euro -0.25% due to the dire situation in Europe, as 50% of the DXY 0.15% ( dollar index 0.00% ) is Euros. The way I see it the only thing that could stall and reverse the USD is, the fed taking their foot off the break by taking a more dovish stance, and a pick up in European growth and de-escalation in European politics.
Other things to note: Rate differential between UAD and US is in US favor by 75bps, which isnt much but in US favor none the less. And the yield spread between AU10s and Tnotes is also in US favor and more importantly widening, since the beginning of the year.
Technically: Since the beginning of the downtrend, Secondary pullbacks to fib618 has worked well. In recent price action had the leg lower with minor pullbacks and now market is consolidating and looking to produce a secondary pullback. Fib618 lines up to the falling TL connecting the highs and with a bit of market structure and the 7200 handle in the mix.
Each leg lower can be between 250 and 300 pips and that would put price around the September 2018 low, which is my final T3 for the trade and with a 40 pip SL makes the trade 7 to 1 returns. Taking profits along the way as always, managing risk and tightening stop loss. T1 = 7105 T2=7005 T3=6910
Other points: Watch out for the 0.70 handle is a key physiological level where price may stall. Need this level to break and move lower.
Sentiment for this arket is clearly bearish , so when in the trade monitor news releases and see how market reacts. market should sell off sharply on negative news and shrug off bullish news. If this reverses then re think the trade.