AUDCHF - First leg of correction completing
After equity markets experienced one of their worst quarters ever, with the MSCI World Index down 20%, the June quarter has begun on a poor note. This is being attributed to some sombre comments from President Trump and companies slashing dividends, including a number of UK banks, which has seen Financials hit. The S&P500 is currently trading near its low for the day, falling over 4%, while European bourses were down in the order of 3-4%.
President Trump’s tone turned more solemn, a sign that he has been listening to health professionals. He warned that the number of US deaths from COVID-19 could reach 100,000-200,000 and that “this is going to be a painful two weeks”. In other COVID-19 news, infections and deaths continue to rise at a slowing pace across Europe and while there are signs of slowing as well in New York, other regions of the US suggest that the inflection point in the curve has yet to be reached. Meanwhile a familiar trend seems to be lockdown periods being extended around the world to help stem the spread of the virus. US intelligence suggests that China has concealed the extent of the coronavirus outbreak, under-reporting both total cases and deaths it has suffered from the disease.
Today sees the release of US initial jobless claims figures, which is likely to be another horror show. The consensus is for 3.6m claims, above the massive 3.3m in the previous week, but with a couple of economist estimates above 6m (including the top ranked forecaster as surveyed by Bloomberg).
National Australia Bank note “From a flows perspective, the abrupt fall in AUD from the 0.60 region to the 0.5510 lows owed something to Australian asset managers scrambling to get FX hedges back onside after the US stock market falls reached a point where mandates necessitated immediate buy-backs of US dollars to bring hedges back in line with benchmarks. This occurred at a time when liquidity was significantly impaired as the various ramifications from COVID-19 globalisation were only just coming into effect. RBA actions in March, including cutting the Cash Rate to 0.25% and introduction of Japan style QE with Yield Curve Control (0.25% target on the 3y tenor), had minimal impact on AUD as the Fed alongside other central banks matched, or exceeded RBA actions.The recovery in AUD in the last ten days of the month came in conjunction with improved risk sentiment as governments – including Australia and the US – agreed massive fiscal support packages and central bank actions served to alleviate US dollar liquidity demands that had earlier propelled the USD to new record highs”
From a technical and trading perspective, in line with the stabilisation in risk sentiment the AUDCHF has corrected from its mid March print in the low 0.53 area and has duly corrected higher in what is likely to prove a potential first leg in a three wave correction pattern. However, it is noteworthy that we didn't really witness any meaningful divergence on the low print as such the low remains vulnerable for a retest. Yesterday's bearish outside reversal pattern adds conviction to the potential for a move lower, and a breach of yesterday's would open a move to test support back towards the 0.56 area, from here we could attempt to base for another corrective move north. A failure to find bids here will leave the lws vulnerable to retest and a significant decision point for the market.
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Disclaimer: The material provided is for information purposes only and should not be considered as investment advice. The views, information, or opinions expressed in the text belong solely to the author, and not to the author’s employer, organization, committee or other group or individual or company.
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Patrick has been involved in the financial markets for well over a decade as a self-educated professional trader and money manager. Flitting between the roles of market commentator, analyst and mentor, Patrick has improved the technical skills and psychological stance of literally hundreds of traders – coaching them to become savvy market operators!