AUDUSD – Falls to Seven Week Low Near 0.72

In the last few weeks the AUDUSD has fallen strongly from resistance at the three-month high around 0.7550 back down to a seven week low close to 0.72. In doing so it has pushed through the key 0.74 level and another key level of 0.73 which has supported the AUDUSD well on multiple occasions over the last few months. This fall follows several weeks of a strong rally which saw the AUDUSD not only move back up through resistance at 0.73 but continuing higher to the 0.74 level and moving through to the three-month high. After hitting resistance at 0.7550 a few weeks ago, its rally did slow down as it rallied back up to 0.7550 to run into resistance again forcing it lower.

Given its range trading over the last few months, there are several levels that are continuing to play a role, which includes the current 0.73 level where it has found some support a week ago. The 0.73 may provide some resistance which it has also done on multiple occasions, should the AUDUSD rally in the next few days. The 0.73 level first gained attention in August when for several weeks it propped up the AUDUSD and kept it within a range between it and 0.74.

If the AUDUSD continues to fall and remains below the key 0.73 level, you could expect the trough seen in late September around 0.7175 to provide some support. Failing that, the round number of 0.70 is more likely to step in and provide support to the AUDUSD.

Another possible scenario is that the AUDUSD is trading at the very bottom of its current channel over the last few months and is poised for buyers to jump in and move the AUDUSD higher back up through its key levels and return to the top of the channel. This is shown in the chart below.

RBA Shines Light Back on Australian Businesses

The Reserve Bank of Australia (RBA) is looking for something to get the Australian economy moving and in a recent speech, the RBA’s assistant governor Luci Ellis believes now is the time for the economy to “evolve.”

In doing so, the central bank has reflected on what the AU economy looked like pre-pandemic and it wasn’t all roses, as the economy was showing little by way of economic or wage growth. “Investment was low, productivity growth was lagging and many of the behaviours we associate with business dynamism were on the decline,” Ms Ellis said in the speech to the Committee for the Economic Development of Australia.

Having previously urged Australian businesses to throw caution to the wind and invest and hire, RBA Governor Lowe has been well supported by Assistant Governor Ellis as she has called for a seldom used word, “dynamism.”

Ms Ellis says dynamism is, “the drive to innovate, adapt and evolve, which helps underpin a society’s living standards.” She wants “adaptation, innovation and dynamism, and [to look at] how the experience of the pandemic might have changed things.”

Meanwhile, the RBA has cautioned Australians about highly speculative cryptocurrencies, reaching frenzied activity. During a speech last week, the RBA’s head of payments policy Tony Richards, questioned the validity of cryptocurrencies generally, but highlighted examples of Dogecoin and Shiba Inu. “The recent boom in this area is perhaps best illustrated by the fact that Dogecoin, a cryptocurrency that was started as a joke in late 2013, had an implied market capitalization as high as $88 billion in June this year”, Mr Richards said.

ASX200 – Drops Below Key Level of 7400

Even though the ASX200 index has drifted lower slightly in the last week or so, 13 stocks from the ASX200 list achieved an all time high last week. Namely: ALS, Altium, ASX, Ausnet Services, Chalice Mining, Graincorp, James Hardie, Macquarie Group, Megaport, Reliance Worldwide, Seek, Technology One and Wisetech Global.

In the last few weeks the ASX200 index has traded in a narrow range receiving some support from the current key level of 7400 level returning to a six week high just shy of 7500. However in the last few days, it has drifted below 7400 although it has been well supported by around 7320 throughout the last few weeks. The ASX200 traded right around the 7500 level in a very tight range for several weeks two months ago and it is little surprise that this level has offered resistance again in the last few weeks. On multiple occasions in the last few weeks, as the index has approached that level it did struggle to maintain the momentum and did stall for several days before easing lower to near 7300.

Over the last few months the ASX200 index has been loosely forming a head and shoulders pattern with the head above 7600 in August and the first shoulder at around 7400 and the current shoulder around 7500. This is widely accepted as a trend reversal pattern, and if the index was to continue to fall in the next week or so, this would complete this pattern and confirm the reversal.
In early October, the ASX200 enjoyed solid support from the 7200 level where it propped it up for around two weeks and this may be called upon again should the index continue to ease lower. The volatility in the ASX200 index (seen in the chart below as the red line) has decreased in the last few weeks returning to a longer-term average.

All things considered, the index has moved very strongly over the last 12 months, with recent signs that it could easily return to its recent all time high and threaten to move higher. The resistance around 7500 is the current obstacle that needs to be cleared although there are obvious levels, eg. 7200, ready to resume support for the index.