01-22-2012: March Australian Dollar: Inflation Slowing in Australia
Technicals still look strong to us for the Australian Dollar, but other factors are working against it. The picture is so mixed that we had to double-weight the news item in our Decision Matrix in order to assign a direction. The belief of majority of analysts is for weakening of the Australian Dollar, despite its popularity as a "high-yielding" currency. As Europe debt crisis problems show increased chances of getting resolved and the Euro puts in a "bottom," demand for high-yielding currencies should increase. But most think the next move in interest rates in Australia will be down to help jump start their economy. Housing sales are bad in Australia, its largest trading partner China is faltering, and a slowing consumer price index inflation rate there suggests the yield on Australian Dollars may get less.
We fed the Australian Dollar, Canadian Dollar and British Pound into a neural network to get the following result:
March Australian Dollar:
March Australian Dollar:
The Australian Dollar is considered a high-yielding currency. Inflation in Australia has been somewhat curbed by interest rates. Latest consumer price index data confirms a slowing inflation rate. There is in turn, an expected cut in interest rates by the Reserve Bank of Australia. Weakening outlook for growth is likely to heighten speculation for additional monetary support as the central bank there tries to balance the risks surrounding the economy. China is Australia's largest trading partner. A slowing recovery in China also fosters a bearish outlook for the Australian versus U.S. Dollar outlook. Some consider that China, the world's second-largest economy, may be facing a "hard landing." The Australian Dollar has been the top-performing currency against the weaker U.S. Dollar. The Australian Dollar is also considered a "commodity currency." Commodity currencies have been showing particular strength against the Euro, with the picture against the U.S. Dollar a bit more mixed. "Commonwealth" countries like Australia and Canada have some relationship to the British Pound, while the Pound has been "decoupling" itself from the fray surrounding the Euro. In recent bond auctions in Australia and New Zealand, prospects for containing the sovereign debt crisis in Europe led to increased demand for higher-yielding assets. Home sales in Australia are faltering, especially in Sydney, Australia's most populous city. They fell 12.8% in the three months ended November. Auctions of distressed properties in Australia are used as a benchmark of market strength. As such, the declining use of auctions in Australia foreshadows another year of prices going down. The number of homes in Australia for sale online jumped 18% in 2011 over 2010. Mortgage lending slowed to the lowest point since World War II in Australia. As the Euro began to show signs of a short-term bottom as measured against the U.S. Dollar, the U.S. Dollar began to tumble in recent trading. This may account for some of the strength in the Australian Dollar denominated in U.S. Dollars in the futures contract. The Federal Reserve Open Market Committee in the U.S. is unveiling new data which can be used to predict when interest rates will start back up in the U.S. Apparently, this is not expected any time soon.
108.5I R 1/20
I CME - Mar-12 Australian Dollr ($100K/$.AD) Cm.=0.03 Lim.= 1.5
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99.5I______X________O_________O____X____________OXO__X____O_O__X______________
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Our computer says a non-conventional reactive interpretation of point-and-figure chart signals works best for Australian Dollar. Therefore, the above chart is taken as giving a sell signal.
We are headed toward a cyclical low and a seasonal up period.
Our best-performing internal program is "Pattern." It is giving a sell signal.
Results of "Pattern" for Australian Dollar (blue lines = successful trades, red, unsuccessful): (Always in the market.)
Our third system is working on a long-term buy signal. (Note, disregard the year on the chart. Our regular readers know this is not a Y2K-compliant system, but it still works.)
The point value is !$1,000. Initial margin on a single contract is $2,970. Use of options is advised.
Scale trade sellers are entering the market for the long term in this price range.
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 with the best track record are getting increasingly-long.
The average volatility shown below suggests that the current uptrend remains intact from the last volatility low point.
Our option trade recommendation is to sell the Australian Dollar June 102 Call @ 4.01 or better.
What the Mar. - Jun. calendar spread suggests to us is that buying the near contract and selling the far one is at most times profitable, which we think is a sign that these futures may go up. The best time to enter or leave the above spread is when it is at 0.64 or narrower selling the far as prices are falling and then buying the near, and exiting or entering when it is at 1.24 or wider buying the far as prices are rising and then selling the near.
Here's an intraday chart for the previous day ( 01/20 ).
Risk Versus Opportunity Report
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ADH2 March Australian Dollar
High Price: 106.01
Current Price: 104.09
Low Price: 100.23
Risk: -0.037
Opportunity: -0.075
(O/R) Ratio = 2.010
| Factors | Weighted Points |
|---|---|
| Inter-Market Analysis | - 1 |
| Parabolic Chart | + 1 |
| Nirvana Chart | - 1 |
| News | - 2 |
| Point & Figure | - 1 |
| Cyclicals | - 1 |
| Seasonals | + 1 |
| Internal System 1 | - 1 |
| Internal System 2 | 0 |
| Third System | + 1 |
| Historic Range | - 1 |
| Commitment of Traders | + 1 |
| Range/Volatility | + 1 |
| Level Table | + 1 |
| Other Factors | + 1 |
| Total | - 1 |
Place 5 December Australian Dollar on a Sell Watch with stoploss @ +2.29 above the get-in point._____________________________________________________________________________________________________________________________C.T.
