NEWS / Foreign Exchange

Integrating FX Strategies for Gold, Aussie & Yen

In today??™s FX charts strategy, we select the Aussie as the currency with the most upside potential across the board as risk appetite returns to the market, and this evening??™s Australian inflation figures are expected to lift the currency. Rallying Asian equities are boosting European trade after China??™s CITIC and US??™ Bear Stearns announced the would buy a portion in one another??™s shares.

Declining oil prices, resulting from a weak US outlook and Turkey ??™s attempts to bring a diplomatic solution to its tensions with Kurdish guerillas, is also boosting market confidence. The lack of US data may be another green light for additional buying on the dips in US equities barring any negative earnings announcements and dire warnings of a US recession.

Sentiment, momentum indicate looming gold top

Gold prices are recovering past the $757 per ounce level after a brief $8 pullback in Monday??™s trade to $749. An extended return to risk appetite is likely to sustain gold??™s rally, but we do warn of the incipient signals from all time highs in the weekly net longs among speculative futures and a bearish divergence in the weekly gold stochastics. The fundamental catalyst of the next gold retreat is likely to emerge from: 1) a global equity selloff that would extend unwinding of carry trades and dollar advances; 2) a Chinese rate hike that woud be perceived as a downside risk for Chinese commodity appetite; 3) upside surprise in this week??™s US housing figures or a figure less weak than expected. We have also warned that gold prices are highly overstretched in relative terms, where the daily deviation must not exceed more than 110%-112% of its 200-day moving average.

Playing the Aussie??™s rebound ahead of CPI

The charts below show not only the negative technicals for gold in Aussie terms (a sign of anticipated broadening improvement for the currency) but also of the upside potential for AUDUSD. Already gaining ground in European trade, Aussie is likely to be bid ahead of this evening??™s Q3 CPI (9.30 pm EST) expected to raise the odds for an RBA rate hike as early as next month. CPI is expected to have risen 0.9% q/q from 1.2%, but this week??™s stronger than expected showing of Q3 PPI of 1.1% in Q3 versus expectations of 0.8%, is likely to trigger a CPI figure of at least 1.1%. It is worth noting that Australia ??™s PPI report has had a successful rate in predicting the magnitude of CPI over the past 4 quarterly releases.

We expect AUDUSD to chart a climb towards 89.50, at which point we could see a retreat until the release of the CPI report. A strong report is seen calling up the 89.80 figure, followed by 90.20. Support stands at 89.00, backed by 88.70.

We continue to favor AUDEUR (63.10) and AUDGBP (44.00).

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