All about the base - AUDUSD
Tony Sycamore December 4, 2020 3:55 AM
After a failed attempt earlier this week due to strong U.S. dollar demand for month-end, the AUDUSD traded to a two year high at .7450 overnight.
In many ways this week has provided a perfect storm for the AUDUSD to mount an upside challenge.
- Volatility has remained subdued as global equities spent the past week consolidating the strong gains of early November.
- The U.S. dollar as measured by the DXY index finally broke below the bottom of its four-month range, trading to a 2 ½ year low.
- Australian Q3 GDP data printed at 3.3%, well above expectations of 2.5% growth, driven by robust consumer spending.
- Upbeat comments from RBA Governor Lowe in a Statement to the House of Representatives including “Since we last met, the economic news has, on balance, been better than we were expecting.”
- Australia's trade surplus rose to A$7,456mn in October, beating expectations driven by a solid rebound in the value of iron ore exports.
Which brings me neatly round to the subject of commodities. Driven by strong demand from China and after Brazilian miner Vale lowered its production forecast, iron ore prices are trading at 6-year highs, near $136. The chart below illustrates the positive correlation between the price of iron ore and the AUDUSD.
Key base metal, copper is up over 15% since the start of November, also on the back of supply shortages and strong demand. Analysts from Goldman Sachs see scope for the price of copper to rally from $7,700 towards $9,500 over the next 12 months, and highlight the upside risks. The chart below illustrates the positive correlation between the price of copper and the AUDUSD.
Technically, following the AUDUSD’s prompt recovery from month-end selling and the break above the .7414 high, the expectation is for the AUDUSD to push higher towards .7600c into yearend as part of a Wave iii to the upside.
Dips are likely to find support ahead of .7400c and again at .7360/50, with only a break/daily close below support at .7340/20 negating the positive bias.
Source Tradingview. The figures stated areas of the 4th of December 2020. Past performance is not a reliable indicator of future performance. This report does not contain and is not to be taken as containing any financial product advice or financial product
Disclaimer: The information on this web site is not targeted at the general public of any particular country. It is not intended for distribution to residents in any country where such distribution or use would contravene any local law or regulatory requirement. The information and opinions in this report are for general information use only and are not intended as an offer or solicitation with respect to the purchase or sale of any currency or CFD contract. All opinions and information contained in this report are subject to change without notice. This report has been prepared without regard to the specific investment objectives, financial situation and needs of any particular recipient. Any references to historical price movements or levels is informational based on our analysis and we do not represent or warranty that any such movements or levels are likely to reoccur in the future. While the information contained herein was obtained from sources believed to be reliable, author does not guarantee its accuracy or completeness, nor does author assume any liability for any direct, indirect or consequential loss that may result from the reliance by any person upon any such information or opinions.
Futures, Options on Futures, Foreign Exchange and other leveraged products involves significant risk of loss and is not suitable for all investors. Losses can exceed your deposits. Increasing leverage increases risk. Spot Gold and Silver contracts are not subject to regulation under the U.S. Commodity Exchange Act. Contracts for Difference (CFDs) are not available for US residents. Before deciding to trade forex and commodity futures, you should carefully consider your financial objectives, level of experience and risk appetite. Any opinions, news, research, analyses, prices or other information contained herein is intended as general information about the subject matter covered and is provided with the understanding that we do not provide any investment, legal, or tax advice. You should consult with appropriate counsel or other advisors on all investment, legal, or tax matters. References to Forex.com or GAIN Capital refer to GAIN Capital Holdings Inc. and its subsidiaries. Please read Characteristics and Risks of Standardized Options.