AUD - a play on a weaker EM and commodity picture
Having liked AUDCAD longs as trade, the focus shifts away from here to how markets digest rates pricing – and notably that of US rates, where US swaps are pricing a 50% chance of a 50bp hike in the March FOMC meeting, and a small chance of an inter-meeting hike – something I feel is a very low probability.
Equity vol has kicked up and EM FX may start to look a touch more vulnerable here, so should we see EM under pressure driven by a reduction in carry, then the AUD may underperform as a proxy. A lot rides on commodity prices in the near term, but if EM and commodities are going to struggle then of course the AUD is going to the vehicle that is used to express that negative stance.
We saw a failed break of the 3 Feb high, with a shooting star candle, so we can see the bears are getting some say here. A break of the rising trend, married with higher implied vol (AUDUSD 1-week IV sits at 10.43%) and the bid may come out of the market, and I’d be looking for a move back to the 70-handle. A tough one, as trends are not developing either way and there’s lots of chop and no momentum on the 4-hr or daily timeframe. Happy to trade the trend break in small size and a worrying equity picture.
Chris
@chrisweston_PS
Equity vol has kicked up and EM FX may start to look a touch more vulnerable here, so should we see EM under pressure driven by a reduction in carry, then the AUD may underperform as a proxy. A lot rides on commodity prices in the near term, but if EM and commodities are going to struggle then of course the AUD is going to the vehicle that is used to express that negative stance.
We saw a failed break of the 3 Feb high, with a shooting star candle, so we can see the bears are getting some say here. A break of the rising trend, married with higher implied vol (AUDUSD 1-week IV sits at 10.43%) and the bid may come out of the market, and I’d be looking for a move back to the 70-handle. A tough one, as trends are not developing either way and there’s lots of chop and no momentum on the 4-hr or daily timeframe. Happy to trade the trend break in small size and a worrying equity picture.
Chris
@chrisweston_PS
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