05-03-2018: June Australian Dollar: It's About Interest Rates

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Introduction
Intermarket
Parabolic

Nirvana
News
Point & Figure
Cyclic/Seasonal

Internal Progrm
Third System
Margin

Historic Range
Commitment
Volatility

Random Chart
Options
Calendar Spread

Level Table
Other Factors
Recommendation

1     01

2     4

3     5     6


Introduction

Interest rates seem to trump all in exchange rate considerations between the Australian Dollar and the U.S. Dollar upon which the standard commodities contracts are based. The Australian economy is recovering slower than other parts of global economies, and hence the Reserve Bank of Australia is very hesitatant to raise interest rates there. The U.S. Federal Reserve on the other hand is in a tightening cycle. The disparity between interest in U.S. and Australian treasuries as crossed a significant line placing Australian interest thereon at a discount to the U.S. treasury situation for the first time in decades.


Intermarket Analysis

We fed the Australian Dollar, Canadian Dollar and British Pound into a neural network to get the following result:




Parabolic Chart

June Australian Dollar:

Parabolic Chart


Nirvana Chart

June Australian Dollar:

Initial Chart


News Analysis

Softer-than-expected German retail sales, weak inflation data from Italy and Germany, and a falling Euro helped boost the U.S. Dollar against all major currencies including the Australian Dollar. The Australian Doillar fell to its lowest level since 2018 began. It has been weighed down not only by geopolitical risk (Israel spies entering Iran, and Israel bombing Iran), and also an interest rates decision from the Reserve Bank of Australia not to raise rates. The Australian "cash rate" has remained at 1.5% for 18 consecutive months, the longest stretch of policy inertia on record. The Reserve Bank of Australia (RBA) hasn't moved interest rates since 2010. Economists and financial markets strongly agree that Australilan interest rates or cash rate will not move in the near future. The RBA is likely to lower growth forecasts from 3.25% to 3.00% for 2018. Household debt in Australia is high, consumption uncertain, and wages stagnant.

In April, the RBA said the Consumer Price Index was running a little below 2% over the year, 25% points the RBA's forecast of 1.75% for the end of the June quarter. A pickup in economic acitivity in Australia and inflation are likely less than currently forecast. The housing market in Australia is described as "soft." Real estate values are falling.

Goldman Sachs predicts the Australian Dollar will fall to 72 cents to the U.S. Dollar by year end. U.S. Treasury yields will widen over those in Australia luring in pension funds as a former premium in Australian bonds over those in the U.S. has reversed itself. In comparing bank forecasts, ANZ Bank is very optimistic for a much higher Australian Dollar, but the the Commonwealth Bank of Australia (CBA), National Bank of Australia (NAB) and Westpac all look for a lower Australian Dollar.

Australian and U.S. interest rates, commodity prices, and quantiative easing in other Western economies are the three main influences on the Australian Dollar in that order.

It is unclear exactly how, but some analysts say that a trade dispute between the U.S. and China will negatively affect Australian iron-ore exports. Prices for that streel-making incredient have dropped 14% so far this year.

The bottom line seems to be that investor risks in the Australian Dollar will keep increasing as the U.S. Federal Reserve continues to raise interest rates while the Reserve Bank of Australia does nothing.


Point & Figure Chart

 92.0|                                                                  T  4/30
     | CME - Jun-18 Australian Dollr ($100K/$.AD)  Cm.=0.03  Lim.= 2.6
     |
     |
     |
 89.5|_________________________________________________________________________
     |
     |O
     |O
     |O
 87.0|O________________________________________________________________________
     |O
     |O
     |O
     |O
 84.5|OX_______________________________________________________________________
     |OXO
     |OXOX
     |OXOXO
     |O OXO
 82.0|__O_O____________________________________________________________________
     |    O
     |    O
     |    O                                            X X
     |    O                                          X XOXO
 79.5|____O__________________________________________XOXOXO____________________
     |    OX                                         XOXOXO
     |    OXO        X                               XOXOXO
     |    OXO        XO                              XO OXO
     |    O O      X XO                              X  OXO
 77.0|______O______XOXO______________________________X__OXO____________________
     |      O      XOXO          X             X X X X  OXO
     |      O    X XOXO          XO        X X XOXOXOX  OXO
     |      OX   XOXO O        X XO        XOXOXOXOXOX  O O
     |      OXOX XOX  O        XOXO    X X XOXOXOXO OX
 74.5|______OXOXOXOX__O________XOXO__X_XOXOXO_OXOX__OX_________________________
     |      OXOXOXOX  O        XO O  XOXOXOX  O OX  OX
     |      O OXO OX  O        X  OX XOXOXO     OX  O
     |        O   O   O        X  OXOXOXOX      OX
     |                O        X  OXOXO O       OX
 72.0|________________O________X__OXO___________OX_____________________________
     |                O  X X   X  OX            O
     |                O  XOXO  X  O
     |                O  XOXOX X
     |                OX XOXOXOX
 69.5|________________OXOXOXOXOX_______________________________________________
     |                OXOXO OXO
     |                OXOX  OX
     |                OXO   OX
     |                O     OX
 67.0|______________________O__________________________________________________
     |
     |
     |
     |
 64.5|----|----|----|----|----|----|----|----|----|----|----|----|----|----|---
       1111              1111                   1        1
      70111112333334555990012122444666666778899911334689922
      11012120111231001120221202012012222020301211020100220
      45370524089306169436847292537761447572083211807495275
The above chart is giving a conventional sell signal.


Cyclical and Seasonal Factors

We are headed toward a cyclical low with no reliable seasonal trend detected.

Cyclicals Cyclicals Seasonals
Seasonals


Internal Program

Our best-performing internal program is "DCV" (Daily Cumulative Volume). It is giving a sell signal.

Internal Printout 1 Internal Printout 2

Results of "DCV" for Australian Dollar (blue lines = successful trades, red, unsuccessful): (Always in the market.)

Results


Third System Confirmation

Our third system is working on a long-term sell signal. (Note, disregard the year on the chart. Our regular readers know this is not a Y2K-compliant system, but it still works.)

Third System


Margin

The point value is $1,000. Initial margin on a single contract is $1,375. Use of options is not advised.


Historic Range

Scale traders are not a factor in this price range.

Historical Chart


Commitment of Traders

Commitment 1

In the chart below, the yellow line is the futures price, read on the right axis. All other colors are read on the left axis. Blue is small speculators. Red is large speculators. Green is commercials. Large speculators, except for a slight blip at the end, are getting increasingly-short.

Commitment 2

Interpretation of a Different Site Below (Their trader categories vary from ours):

Commitment 3


Volatility / Probable Range

FB 1 FB 2

The average volatility shown below suggests that an uptrend remains intact from the last volatility low point despite interim obvious chart pattern changes.

Range/Volatilitiy Chart


Possible Future Prices

Random Chart


Option Recommendation

Our option trade recommendation is to Buy (1) Australian Dollar December 0.765 Call and Sell (1) Australian Dollar December 0. 755 Call @ .0042 to the sell side or greater.


o 1 o 2 o 5


Calendar Spread

What the Jun. - Dec. calendar spread suggests to us is that buying the near contract and selling the far one is at most times not profitable, which we think is a sign that these futures may go down in the long run. The best time to enter or leave the above spread is when it is at -0.18 or narrower selling the far as prices are falling and then buying the near, and exiting or entering when it is at +0.23 or wider buying the far as prices are rising and then selling the near. At this time, we appear to be apporaching the sell the far, buy the near point.





Level Table:

Level Table

The path of least resistance is down.
 82.0|                                                                  R  4/30
 CME - Jun-18 Australian Dollr ($100K/$.AD)  Cm.=0.03  Lim.= 2.6
     |
     |
     |
 81.0|TTT______________________________________________________________________
     |KTTTTU
     |KKTTTTTU
     |KKTTTTUU
     |GKKKTTTTUUU
 80.0|GGKKKKKKKLTTTTTTTUU______________________________________________________
     |GGJJKKKKKKKKLTTTTTTUU
     |GGGGGGJJJJKKKKKKLSTTTTUV
     |FGGGGGGGJJJJJKKLLLSTTTUVV
     |FFFFFGGGGGGHJJJJJJKLLLSUUVV
 79.0|FFFFFFGGGGGHHHHHJJJJJJLLLSSUUVVVVW_______________________________________
     |FFFFFFGGGGHHHHHHHJJJJJJJLSUUUVVVVVWW
     |FFGGGHHHHHHHJJJJJLLMMSSUUUVVVVWWWX
     |FHHHHHHHJLLMMNNSSSSSSSUUUUVVVVVWWWX
     |FHHHHLLLLLMMMMMNNSSSSSSSSUUUUUVVVVVVWWWX
 78.0|FFHHLLLLMMMMMNNNRSSSSSUUUUVVVVVVWWWWX____________________________________
     |FFFHLLLMMMNNRRSUUVVVVWWWWXXZZ
     |FFFLMMMMNNRRUUVVWWWWXXXZZZZZ
     |FMMMNRUWWWWXXXXYYYZZZZZ
     |FMMNRWWXXXXXXYYZ
 77.0|FFNORRWXXXXXXXXYYYZZ_____________________________________________________
     |FNNOORXXXXXXXYYYYYYZ
     |EFNNNNOOOOOOORRRRXXXXYYYYYYYZZ
     |EEEEFFNNNNNOOOOOOOQRRRRRXYYYYYZZ
     |EEEFNNOOOOOPQQRZ
 76.0|EEEEFOOOPPPQQQQZZ________________________________________________________
     |DDDDDEEEEEOPPPPPPQQQQQZZZ
     |DDDDDDEEEEEEOPPPPPPQQQQZZZ[[
     |DDDDDDDEEPPPPPPQQQQQZZ[[
     |CDDDDDPPQQQ[[
 75.0|AACCCCDDDQQQQ   <<<
     |AACCC
     |ABBBC
     |ABBBBCC
     |ABBBBBBCCCC
 74.0|ABBBBBBCCCCC_____________________________________________________________
     |AAAABBBBBCCC
     |AAAABBBCC
     |AAAAAAACC
     |AAA
 73.0|AAA______________________________________________________________________
     |
     |
     |
     |
 72.0|-A-B-C-D-E-F-G-H-J-K-L-M-N-O-P-Q-R-S-T-U-V-W-X-Y-Z----|----|-- TPO=-0.325
                             1 1 1 1 1 1                              
       5 5 5 6 6 7 7 8 8 9 9 0 0 1 1 2 2 1 1 1 2 3 3 3 4 4           4
       0 1 3 1 2 1 2 0 2 0 2 0 1 0 1 0 1 0 1 3 1 0 1 2 1 2           3
       2 5 0 3 7 2 6 9 3 7 1 5 9 2 6 1 5 2 7 1 4 1 5 9 3 7           0


Other Factors

Multiple Chart Indicators Summary
Multiple Chart Indicators Summary


Here's an intraday chart for a previous day ( 5/01 ).

Intraday Chart


                 Risk Versus Opportunity Report
                ________________________________

                 ADM8    June Australian Dollar

                      High Price:  76.28
                   Current Price:  75.30
                       Low Price:  73.33

                            Risk: -0.026
                     Opportunity: -0.053

                    (O/R) Ratio =  2.010


Overall Recommendation

Decision Weighting Factors
FactorsWeighted Points
Inter-Market Analysis - 1
Parabolic Chart - 1
Nirvana Chart - 1
News - 1
Point & Figure - 1
Cyclicals - 1
Seasonals 0
Internal System 1 - 1
Internal System 2 0
Third System - 1
Historic Range 0
Commitment of Traders - 1
Range/Volatility + 1
Level Table - 1
Other Factors - 1
Total -10
Place 10 June Australian Dollar on a Sell Watch with stoploss @ +2.61 above the get-in point when recent price is represented as "74.93".
____________________________________________________________________________________________________________________________________________C.T.