I will be looking back at the behavior of the AUD/EUR pair. since it has displayed the most pronounced price movement of any Aussie pair since August.
EUR/AUD, AUD/CHF and AUD/USD are correlated in direction, not magnitude to the Dow/SP500.
Looking at a daily chart of the EUR/AUD pair it is clear that the AUD increases much more causiously than the EUR does. In August, the credit crunch caused traders to unwind their carry trades, dumping their AUD for other lower yielding currencies (EUR in this case). Then starting in mid August traders caught their breath and started to regroup, causing the pair to channel for the next month (13 August - 14 September). This channeling
clearly a sign that carry traders were causiously testing the waters
until, around September 15, the pair broke the channel and slowly but
surely started heading south as carry trades picked up again.
The next large upset (probably known to all as that crazy month in November) pushed pair back to the 1.7 level in almost the same time frame as the last increase, which occured in August. Then, the sovereign wealth fund bailout of citigroup lifted the Dow/SP500, decreasing risk aversion and spawning more carry trades.
Today (December 4th) however, the Dow took a -60 point hit causing a +200 pip move in the EUR/AUD. Interestingly, last week the Dow saw 200-300 point increases, causing only 'modest' EUR weakness against the AUD. This shows just how on edge carry traders are. So, relatively small decreases in the Dow lead to large increases in the EUR/AUD, BUT large increases in the Dow cause only small decreases in the EUR/AUD. Traders are understandably causious. However, as tense as the markets are, I believe that the EUR/AUD will weaken slowly in the next 2-3 months, perhaps preceded by a consolidation not unlike the one we saw in August/September. Of course, for short-term traders there probably will be a few hickups along the way (AUD is leading implied volitility) ,but as the credit market begins to settle I would not be surprised to see 1.5555 again.
Watch the Dec 11 meeting as the fed is likely to make a significant rate cut, prossibly leading traders away from the dollar, toward greener pastures. (slowly, but surely)
It should be noted that there is a strong correlation between the AUD/USD
and the EUR/AUD pair, one that did not always exist when one compares monthly charts of both pairs (as pictured).
Take care and good luck.
rudenstein
EUR/AUD, AUD/CHF and AUD/USD are correlated in direction, not magnitude to the Dow/SP500.
Looking at a daily chart of the EUR/AUD pair it is clear that the AUD increases much more causiously than the EUR does. In August, the credit crunch caused traders to unwind their carry trades, dumping their AUD for other lower yielding currencies (EUR in this case). Then starting in mid August traders caught their breath and started to regroup, causing the pair to channel for the next month (13 August - 14 September). This channeling
clearly a sign that carry traders were causiously testing the waters
until, around September 15, the pair broke the channel and slowly but
surely started heading south as carry trades picked up again.
The next large upset (probably known to all as that crazy month in November) pushed pair back to the 1.7 level in almost the same time frame as the last increase, which occured in August. Then, the sovereign wealth fund bailout of citigroup lifted the Dow/SP500, decreasing risk aversion and spawning more carry trades.
Today (December 4th) however, the Dow took a -60 point hit causing a +200 pip move in the EUR/AUD. Interestingly, last week the Dow saw 200-300 point increases, causing only 'modest' EUR weakness against the AUD. This shows just how on edge carry traders are. So, relatively small decreases in the Dow lead to large increases in the EUR/AUD, BUT large increases in the Dow cause only small decreases in the EUR/AUD. Traders are understandably causious. However, as tense as the markets are, I believe that the EUR/AUD will weaken slowly in the next 2-3 months, perhaps preceded by a consolidation not unlike the one we saw in August/September. Of course, for short-term traders there probably will be a few hickups along the way (AUD is leading implied volitility) ,but as the credit market begins to settle I would not be surprised to see 1.5555 again.
Watch the Dec 11 meeting as the fed is likely to make a significant rate cut, prossibly leading traders away from the dollar, toward greener pastures. (slowly, but surely)
It should be noted that there is a strong correlation between the AUD/USD
and the EUR/AUD pair, one that did not always exist when one compares monthly charts of both pairs (as pictured).
Take care and good luck.
rudenstein
Attached Image (click to enlarge)
