new lows in for the Aud/usd, new highs for the Eur/Aud

I really haven't been watching the comm majors since the dollar gave up its breakout potential with the trend break earlier this week; but the crosses are still presenting interesting opportunities.

The trend channel in AUDNZD is turning into a wedge and the move seems as if it is overextended. I think we could get a significant trend reversal if the RBA cuts more than expected or 3Q GDP crosses the wires with a signal that a deep recession is setting in.

Same goes with AUDCAD. However, this pair is extremely prone to a breakout in my opinion. With currency market volatility still near 20%, interest rate and growth speculation price action and financial market uncertainty still looming, congestion like this shouldn't exist.

Attached Images

  

__________________
John Kicklighter is the author of Dynamic Carry Trade Basket, Watch What The Fed Watches, and Forex Trading Weekly Forecast on DailyFX.com

I will reiterate my belief that AUDNZD will head past 1.20 primarily from fast falling NZ economy and a potentially huge rate cut from RBNZ which will far outrun RBA's rate cut.

It is a long way down for the price-bubble to burst across the world. You may want to reconsider if the bottom has been hit. AU, NZ central banks may be cutting their rates big time tomorrow (AU) and a day later (NZ). Never catch a falling knife! When the bottom is hit you will see it clearly like a dried out tank with no activity, and a large basin formation. It is ok to miss the absolute bottom but not ok to speculate a bottom, in my opinion. In any case, if you do want to go long, better go long after the interest rate decisions.

IF you think commodities may go up, then you may directly buy gold instead of betting on commodity currencies.

BTW, the forecast for many commodities for steel and copper is highly bearish. They may weigh on gold. While I agree that when commodities recover Gold will be first to recover, I can't say the same thing for commodity related currencies. They are subject to interest rate and carry trade conditions.

My take is that until the interest rates stabilize, the risk aversion will continue and USD will remain strong.

I completely agree with you DollarBull. A play on commodities should be done so through the asset itself and not through currencies that export them. Income from commodity production is only a modest percentage of total growth for each of these economies; and in many market conditions (like the one we are in now), it is not even the most important.

I don't know why you are betting on inflation Waldo, as prices contract in times of recession as demand and supply must reach equilibrium (unless businesses have money to burn in holding out against a frugal consumer).

I think the RBNZ goes for 150 (inspired by the BoE and looking to snuff things in one fell swoop) while the RBA eases things by 75 basis points. What do you guys think?

__________________
John Kicklighter is the author of Dynamic Carry Trade Basket, Watch What The Fed Watches, and Forex Trading Weekly Forecast on DailyFX.com

G'day DollarBull - Have to agree with your assessment of the bottom...we are definitely not there yet. The Us economy which is leading this downward spiral is in terrible shape...the bailouts thus far amount to about $50,000 per taxpayer (how many years of disposable income is that for the average person!), and the Fed there is going to keep printing money as long as they can get away with it. But there are fewer taxpayers to carry the load every day.
Major corporations are failing, the R.E. market is in freefall in many cities with ghost towns of newly built homes, tens of thousands of jobs have been lost. The real bottom cannot occur as long as most people in the Us believe there is still a chance of a soft landing. There is close coorelation between the OZ & Kiwi dollar charts and the Us stock market...which imho has another few thousand yet to fall.

These "stimulus packages" are like voodoo music to Bernie. Once the music stops the economy will fall down. You can't revive an economy through supply side. It is not like there is a paucity of currency notes. Most banks are sitting on huge piles. In US over 62% of all printed currency bills are with the banks. They could easily start lending without additional currency bills from Uncle Sam. Supply side availability has never been a problem. Governments attempt to do that because of shortsightedness and a desperation to tell the public that they are acting. The real problem in money pipeline is the currency flow in the circuit. If you know some basic electronics, it is like the mobility of electron in a circuit, not the availability of electrons, which are always there in abundance. To enable proper money flow it is important that money is made available in all the nodes of the circuit, not at one end. Government should bail out the 3 million small businesses in US. Bailing out a few failed mega corporations is throwing good money after bad.

Printing more currency notes and attempting an artificial inflation won't work for the same reason the number of currency notes is not the problem faced by economy. It is business confidence, lenders confidence, borrowers eligibility requirements, payroll stagnation, loss of buying power of consumers who have maxed out creditcards, loss of home equity from artificially inflated purchase prices, worsening infrastructure that leads to wasted resources (e.g. poor roads will damage your tires more frequently and you will end up spending your precious little earning on fixing your auto more often), are some of the problems.

Economic cycles are slow wavelength patterns. A nation in recession will take many years to claim success coming out of bad economy. There is no real urgency to worry about picking bottoms, especially when the slide is accelerating at 5g downwards. See, gold fell over $50 in one session. Gold is capable of going down much like other stuff. OPEC didn't announce any production cut. This will send oil down to $20 per barrel, back to 1999 history. In terms of gold/oil ratio this may send gold well below $500 before it turns back and rockets upwards. Wait for a day when gold rallies over $200 in one day, that is when you can say it has made a U-turn.

I will be surprised if they cut anything below 100 bps and won't be surprised if they cut as much as 150 bps. The US recession info will weigh on their decision. Following their cut RBNZ may cut as much or even larger (200 bps). These actions will be considered 'preemptive'.

Would a larger than expected rate cut help or hurt there currency?

They just cut by 100 bps, so the question is moot. However, they have hinted at additional cuts, and I expect them to cut by 50 bps or larger early next year. The likelihood of reduced rates is not friendly to a currency, in the absence of other factors.

Thanks man. I'm looking for a break of the support area at 63.35 for a short entry.

Stagflation

Waldo, just so you know;

The RBNZ OCR announcement is on the 4 of December, 8:30am local time. Reserve Bank of New Zealand

All OCR announcements in New Zealand are made on the first Thursday of the month.

.....

DB, I'm not sure Allen Bollard has a 200bsp cut in him . We can only hope.

Inflation will not be a concern for some time. The bulk of these spending packages are aimed at the financial level to stabilize lending. That portion that is dedicated to the consumer is modest at best. What's more, any money these consumers receive from the stimulus infusion will go to paying off debt or living costs (consider the quick rise in global unemployment and drop in wages going forward). Furthermore, even if they do spend on goods, the impact will be modest considering overall wealth and jobs continue to be lost. Pricing managers know full and well that they can't raise prices on the first sign of a small reversal in demand (like we say in the US after the tax rebate) or they run the risk of losing any competitive edge they have.

As for commodities, stimulus packages usually impact factories and production last. That's because it first has to go through the consumer for pull-style demand to feed through production and thereby make resources more valuable. We know that that consumer will continue to taper spending habits going forward; so this will take even more time.

Altogether, the changes you base on economic intuition may happen over the longer term, but it is very difficult to trade something like this over the longer-term. If you have a leveraged FX account or your trading on the leverage through a futures margin account, you can easily be wiped out on a natural pull back before the eventual reversal.

__________________
John Kicklighter is the author of Dynamic Carry Trade Basket, Watch What The Fed Watches, and Forex Trading Weekly Forecast on DailyFX.com

Hi everyone,

re Aus interest rate cut, I am not suprised that the RBA decided to cut rates more than 75 points, and as a result, I had put some money towards it, hoping for it to go down.

It did end up going down, but not enough to hit my limit buy (Maybe I was being too greedy). Then by the time I got home from work to close my position and keep some of the profit, the AUD went up heaps, so I decided to hold on to it. Then when I made some little profit, i closed my position disappointed. I was hoping the AUD would drop a lot more, but maybe I started selling too late.

Also because the RBA indicated sth along the lines of not cutting that much in the future, the AUD held up.

*disappointed*

At least I made some money from NZD falling, and now eyeing NZD for tomorrow's rate cut.