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15 Oct 2015
AUD/USD: Reasons why bullish rally may not be over
FXStreet (Bali) - AUD/USD was snapped back down from a level perceived as acceptance by the market circa 0.7350 late in Asia, on the back of disappointing Aus job figures, and in response to an 'opinion' article by AFR, saying there are very good chances of a rate cut by the RBA in November.
Why Aussie's bear leg late in Asia may have run out of steam
While USD broad-based weakness may act as a standalone factor sufficient enough to bring AUD/USD back into life from the latest Asian setback, there are other compelling elements traders should be taken into account, suggesting the dip may have run out of steam.
Firstly, the quick 40/45 pips decline off highs was caused by an 'opinion' article, and while it may come from a well-respected source as AFR, the fact that is simply an opinion article rather than an official RBA source being quoted, implies the market overreacted to what was determined as fair price prior to the event circa 0.7350.
Secondly, the counter-intuitive move by the Australian Dollar to appreciate against its American counterpart - once the algos feast was over -, in reaction to a softer-than-expected Australian employment report, is one of the strongest signs that exist to tell about current market positioning/sentiment. The decline in AUD was seen as an opportunity to buy at 'value areas' at discounted prices, with the market still pricing out Fed rate hikes, now at 'coin flip' levels for the March 2016 meeting. As a result, an ongoing unwinding of USD longs continues.
Thirdly, by analyzing the latest CME FX options positioning for Wednesday, in the AUD/USD November contract, while it doesn't show much commitment to play directional bets, with 'in the money' puts and calls contracts barely experiencing any activity, it is worth noting that the 'out of the money' puts, effectively serving the purpose of a cheap insurance against further rises in the AUD/USD, saw a major rise of 3,248 contracts bought, as opposed to 858 'out of the money' calls. These results imply a market still taking precautionary 'insurance-like' steps against what they expect might be further rises in the AUD/USD.
Why Aussie's bear leg late in Asia may have run out of steam
While USD broad-based weakness may act as a standalone factor sufficient enough to bring AUD/USD back into life from the latest Asian setback, there are other compelling elements traders should be taken into account, suggesting the dip may have run out of steam.
Firstly, the quick 40/45 pips decline off highs was caused by an 'opinion' article, and while it may come from a well-respected source as AFR, the fact that is simply an opinion article rather than an official RBA source being quoted, implies the market overreacted to what was determined as fair price prior to the event circa 0.7350.
Secondly, the counter-intuitive move by the Australian Dollar to appreciate against its American counterpart - once the algos feast was over -, in reaction to a softer-than-expected Australian employment report, is one of the strongest signs that exist to tell about current market positioning/sentiment. The decline in AUD was seen as an opportunity to buy at 'value areas' at discounted prices, with the market still pricing out Fed rate hikes, now at 'coin flip' levels for the March 2016 meeting. As a result, an ongoing unwinding of USD longs continues.
Thirdly, by analyzing the latest CME FX options positioning for Wednesday, in the AUD/USD November contract, while it doesn't show much commitment to play directional bets, with 'in the money' puts and calls contracts barely experiencing any activity, it is worth noting that the 'out of the money' puts, effectively serving the purpose of a cheap insurance against further rises in the AUD/USD, saw a major rise of 3,248 contracts bought, as opposed to 858 'out of the money' calls. These results imply a market still taking precautionary 'insurance-like' steps against what they expect might be further rises in the AUD/USD.