RBA Gets It Started

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“Study carefully, the character of the one you recommend, lest their misconduct bring you shame.”

                           Marcus Tullius Cicero

FX Trading – RBA Gets It Started

What did the RBA do? Nothing.

And their inaction confirmed what traders have been anticipating: a very unstable foundation for the global economy. Thus, despite the outlook for Australia’s economy in the long-run, it’s certainly no time to be raising interest rates any higher.

So after a very quiet memorial day in the forex market, the Australian dollar, naturally, is reacting most sharply to the RBA’s assessment of global economic conditions. And the euro isn’t doing so hot either.

4-Hour AUDUSD & EURUSD: correction over?

4-Hour AUDUSD & EURUSD: correction over?

The euro has already touched fresh lows on its test of critical support levels; the Aussie is quickly erasing last week’s rise today.

And here’s another chart to pick through. It shows 1) the US Dollar Index futures, 2) the non-commercial long positioning on US Dollar Index Futures, and 3) the month-over-month change on US dollar Index Futures non-commercial long positions.

There’s been quite a steep drop-off in total non-commercial longs since the beginning of the year, but based on the long positioning action, it seems a lot of the speculative excess has worked itself out. In other words, there are plenty of buyers right now who will be looking to jump back in on the dollar as global worries provide additional fuel for the risk aversion trade.

US Dollar Index chart

We’d been shuffling around our positions last week and the week prior, expecting a dollar correction. We mostly got it. And based on price action alone, the buck could have easily fallen back further. But the above analysis tells us that this correction could easily be over already.