AUD trading quietly ahead of RBA; JPY and GBP showing modest short-term strength

It’s August, the traditional holiday period in Europe and the US, and volumes in the FX market tend to shrink around this time. That increases the danger of sharp reversals, especially if markets are heavily positioned one way. Today we have the RBA rate decision, widely expected to be another 25bps cut, and elsewhere much of the focus remains on the Fed and it’s taper-timing.

Most interest today will of course revolve around the AUD. A 25bps rate cut is already 100% priced in so unless the statement is very dovish, I cannot envisage any major sell-off in the AUD. The daily chart remains heavily oversold and only a break back above .9050 will endanger the bear trend. The short-term charts are showing support/resistance at .8850/80 and .8990/00, and these levels will more than likely hold firm pre-RBA. 

AUD short positioning is at close to record levels and with market volumes starting to shrink, the real explosive danger could be to the topside if these shorts are forced to cover. Trailing stops reported in size above .9050.

The AUD crosses are also at very interesting levels. AUD/NZD tried to reclaim resistance levels at 1.1500/40 yesterday after the NZ milk scare but failed. I’d play the 1.12/1.15 range here. AUD/JPY remains in a downtrend whilst below 89.50, EUR/AUD failed marginally to touch 1.50 and GBP/AUD gained fresh bullish momentum yesterday after breaking above 1.7200.

I’m still short USD/JPY from Friday and I feel that we are in a 97.50/100.00 short-term range. My overall bias remains bearish but we can expect plenty of choppy trade in coming days. The macro market remains long of USD/JPY in substantial size, so just like the AUD in thinning markets, if we do see a big move it will be Yen positive imho.

The GBP got an unexpected boost from some very strong PMI data overnight and this is another market which has been bearish for quite some time and is prone to a reversal. Nevertheless, the crosses will need to overcome some important levels (like above 151.50 in GBP/JPY or below .8600 in EUR/GBP) before the bulls really get some extra momentum.

EUR/USD has been shockingly hard to trade and the case for it to trade between 1.2750 and 1.3400 until the end of time is becoming stronger  Jokes aside, better trades elsewhere!

One last note of interest is that the big Swiss players were noted sellers of EUR/CHF overnight and we may get a slow and gradual drift back towards 1.20 here?

Good luck.