Commodity Currency Update


The pair which at best is volatile during breakouts has been trading a considerably more volatile pattern over the last 30 days. A break above or below the 200 day moving average typically signals a change in long term outlook. However, we have seen the CAD bounce along the 200 day MA for the past month. There has been only one break below the 100 day MA which occurred in mid May. That break below was short lived as the lows traded below the 50 day MA but price was not able to close below the 50 MA. Friday’s price action once again had a low that touched the 50 MA but eventually closed back at the 100 MA. A close below the 50 MA suggests further CAD strengthening while an inability to do so coupled with a close back above the 200 MA suggest market indirection. A close back above the prior high at 1.0610 implies the CAD run has probably run its course.


AUD bull skeptics site the Aussie inability to crack mid .9300 range as the reason it has fallen so far so fast. It formed at least a quadruple top, meaning the AUD retried the same level 4 times, and each time failed to close higher than that level. The major MA’s (200, 100, and 50) certainly favor falling prices. However, we have to account for correlations between the price of Oil as well as price action on the NZD and CAD before we doom the AUD. The Aussie essentially closed at Resistance last week near .8500. The distance from price to the nearest major MA is significant enough that we normally expect the two to converge, but volatility is plaguing the market right now so until we see the AUD close above the 50 MA or close below .8050 on the daily chart, neither the bears or bulls will reign.


As we have noted before, if it were not for the price level on the chart you may almost think that the below daily chart is an AUD daily. The 2 currencies have a high correlation and economic interdependence which is highlighted by the identical price patterns. The major MA’s order sequence once again imply a falling price environment. Unlike the AUD, the NZD has taken out near term Resistance. However, it will require a close back above the 50 day MA before the bulls can think about running once again. Meanwhile a close below Support at .6550 would suggest weakening will resume. Of course, keep in mind the commodity currencies correlation as strength in one pair may help boost the others.

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