Today’s steep sell-off in equities was accompanied by declines in the commodities sector, with crude prices plummeting after news that the International Energy Agency had tapped 60M barrels of oil from the Strategic Petroleum Reserves in an attempt to cool crude prices and offset supply disruptions from Libya. Gold fell more than $26 on the day for a loss of 1.72% as traders jettisoned commodities across the board. However a late-day rally saw equities close well off their lows after reports hit wires that Greece had reached an agreement with IMF/EU inspectors on a 5-year austerity plan. The news helped ease concerns as the agreement practically guarantees Greece the next tranche of aid. However commodities did not participate in the rally, suggesting the risk-off sentiment maybe deeper rooted.
A look at a daily chart sees the aussie holding in an upward channel since late May, with recent price action continuing to range within an embedded descending channel. With commodity prices seeing the steepest declines, and risk sentiment continuing to deteriorate, the bias on the trade is weighted to the downside.
Applying the Andrew’s pitchfork tool on a 4-hour chart sees the AUD/USD pair holding tightly in the upper range. Although news of Greece saw the pair rebound off interim trendline support, the opportunity provides traders with a topside entry points for shorts to the downside. A break of the intersecting trendline puts the pair into the lower channel of the pitchfork formation.
Today the aussie saw a downside break of the wedge formation dating back to the June 16th before finding support at 1.0470. Preferred short entry targets are eyed at the 38.2% Fibonacci extension taken from the June 15th and 22nd crests at 1.0555, backed by the 23.6% extension at 1.0590 and the 20-day moving average at 1.0630. Support profit targets are held just above the 61.8% Fib extension at 1.0505, followed by the 76.8% extension at 1.0470 and 1.0440. With a 2-hour average true range of 34.61, profit targets on said scalp should be between 23-28 pips depending on entry. Note that the scalp will not be active until a rebound off of 1.0555 or a confirmed downside break below 1.0505. Once the scalp is active the levels will remain in play until such time when either of the topside/bottom limit targets are compromised.
Key Thresholds
A daily RSI read of 45.16 suggests there is upside potential in the interim as the indicator has been unable to breach the 55 level since early May. We reckon a breach above the topside limit at 1.0630 negates the bearish bias on the trade with such a scenario eyeing the topside break-targets at1.0650 and the 1.07-figure. Likewise a break below the bottom limit at 1.0440risks further losses for the aussie with subsequent floors seen at1.0415 and 1.0390.
Notwithstanding any further developments out of the Eurozone, risk event for the trade is weighted more on the greenback with flurry of economic data on tap, highlighted by the May durable goods orders. Consensus estimates call for a print of 1.6% up from a previous read of -3.6%. A weaker than expected read here could weigh on the dollar, upsetting our bearish bias on the AUD/USD pair. Also on tomorrow’s docket are prints on 1Q GDP, personal consumption, and capital goods orders.
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