AUDUSD had an ugly day on a meltdown in risk appetite. Could tonight's Australia employment data bring further misery to the pair? From a contrarian point of view, AUDUSD downside has become rather compelling again if we have a look at the IMM positioning (from US CME futures market).
Chart: AUDUSD vs. US futures positioning
It's easy to see that AUDUSD longs have been the only popular trade for a long time now, with US futures speculators only going into an outright short position only once AUDUSD had tumbled to about 0.80 back in 2008 and never really getting short during the panicky deleveraging days. This time around, the participation in the rally has been less enthusiastic (as seen in a lower net long position relative to the AUDUSD level and despite the tremendous rally - an interesting divergence.). Note that this is weekly data and that the latest data point was for positioning as of last Tuesday (releases are made every Friday.).
It's easy to see that AUDUSD longs have been the only popular trade for a long time now, with US futures speculators only going into an outright short position only once AUDUSD had tumbled to about 0.80 back in 2008 and never really getting short during the panicky deleveraging days. This time around, the participation in the rally has been less enthusiastic (as seen in a lower net long position relative to the AUDUSD level and despite the tremendous rally - an interesting divergence.). Note that this is weekly data and that the latest data point was for positioning as of last Tuesday (releases are made every Friday.).
Today's developments
Equities in the US closed the day on a very ugly note, with no signs of the last minute rally so often evident from the algo/HFT crowd, which has likely been at least partially sidelined after a day like today. Then after the close, we get a terrible Cisco earnings report from the networking bellwether.
Equities in the US closed the day on a very ugly note, with no signs of the last minute rally so often evident from the algo/HFT crowd, which has likely been at least partially sidelined after a day like today. Then after the close, we get a terrible Cisco earnings report from the networking bellwether.
It was the worst day for risk since late June and saw the average closing significantly back below the 200-day moving average that had provided support twice since last Thursday. The developments in FX were largely along the lines one would expect on a day of misery for risk, though it is especially interesting that EUR led the charge lower on the day rather than the normally more risk-prone commodity currencies. Interest rate developments partially supported the Euro weakness, but as we pointed out this morning, so too did the ugly developments in European sovereign debt, with PIGS spreads moving the wrong way once again after the long regime of spread tightening that started back in July finally reversing in the last couple of days.
Another interesting development today was the reasonably strong reversal back from new lows by USDJPY despite the very ugly day for risk appetite and generally higher yields. Will USDJPY continue to churn lower or is this finally a sign that the weak USD story has been overplayed and that traders fear testing the BoJ's/MoF's resolve here. If we look at the speculative positioning in the US future for the Japanese Yen, it also looks very stretched. Is 90 more likely than 80 for USDJPY?
Looking ahead
Next on tap we have the Australian employment report, which is either going to give a better level to push AUDUSD lower or see an additional large acceleration lower in the next couple of days as long as this move in risk aversion is white hot. Stay tuned and stay careful out there. Tomorrow will be a key test for the US bond market with the 30-year US T-bond auction out after the Fed announced that it will be buying treasuries again (but also after an enormous rally in bonds, albeit one that has seen almost no downside in recent weeks in 30-year yields relative to the steep declines in the 10-year yields in recent days.
Next on tap we have the Australian employment report, which is either going to give a better level to push AUDUSD lower or see an additional large acceleration lower in the next couple of days as long as this move in risk aversion is white hot. Stay tuned and stay careful out there. Tomorrow will be a key test for the US bond market with the 30-year US T-bond auction out after the Fed announced that it will be buying treasuries again (but also after an enormous rally in bonds, albeit one that has seen almost no downside in recent weeks in 30-year yields relative to the steep declines in the 10-year yields in recent days.
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