We’re knocking out levels like coconuts at a fair. First 0.9000 went, then the Sep 2010 low at 0.8910 was the latest and now we have the 100 mma at 0.8858 in sight followed by the August 2010 low at 0.8770.
We’re now down over 1700 pips or 19% since the 2013 high in Jan. The majority of that loss has come since April. The last time we had 5 straight monthly losses was over the GFC where the pair lost 3840 pips.
We’ve passed below the pre-crisis highs and we’re now into the area where the pair stabilised after the GFC lows, before taking the next leg up on the back of the Greece troubles and Euro implosion. Everyone rushed to the dollar in May 2010 as the Greek crisis took hold and then the safe haven and yield chasing run continued.
It’s natural that we’ve fallen back to this level on the basis of Europe steadying the ship but additional factors are in play now, such as China and Australia’s economic situation. The Europe factor on it’s own would suggest that 0.80-0.90 level would be the new sensible range for the pair and the risk to that range will come from China and Australia. If we see the low 80’s then I think the overall move will be very stretched.
The global growth situation lags between continents. Growth dropped in the US and Europe on the GFC and China is only now (in recent terms) showing a trend in weakness. This is coming as the US and Europe are showing signs of improvement. We’re on the way up while China, Australia etc are on the way down. Should the economies improve this will then naturally feed into China and the commodity countries but with lag.
So as far as the Aussie goes I think we are getting towards a point where the drop will level off and maybe start to turn. Granted I’m talking about another 6-700 pips but the fact remains it won’t carry on going down forever.
The balance will come between how much a US recovery is worth to USD compared to how much it’s worth to commodity countries and China.
In the short term I wouldn’t trade off the 100 mma with the price this close and on NFP day, but the 0.8770 is the next big level which could see shorts taking some profits and longs coming in. Under that it’s the 50 fib of the 2008/2011 lo hi at 0.8544 which may provide a better level to start thinking about building longs.
