Friday, December 13, 2013

Did Glenn Stevens kill the Aussie?

Alright, before you guys scramble and scratch your head about the headline and what it means stick with me for a few more moments and let me explain. As a forex trader you should always be aware of developments like this as it will impact your forex trades. I am not suggesting to trade fundamental news reports as you all know I am a technical trader and get all my trading info from the charts as I trade price action.

Let's back up a few notches here. Did you notice the big sell-off in the Aussie yesterday? 

You have no idea what I mean when I say Aussie, great. The Aussie is a nickname for the Australian Dollar and not some beardy bartender in New South Wales. When you hear people talk about the Aussie or read about it and it has anything to do with financial content then it usually refers to the Australian currency.

Now back to my first question, those of you who trade must have noticed it. Those who trade and did not, check your charts again and you should see a heavy sell-off towards the end of the US trading session. Bears took this currency pair and slammed it through the floor. 

You may have wondered why this happened as prior to the heavy selling pressure, which resulted as institutional traders dumped the Aussie, the AUDUSD for example was trading it very good support levels. I myself went long at 0.9000, but had my hedges kick in at 0.8960. I closed them already earlier today for a good 50 pips in profits and entered additional longs at 0.8910. I managed to caught the bottom with precision this time, at least for now.

The reason why the Aussie was punished yesterday and earlier today prior to its reversal which was partially due to an expected short-covering rally was Glenn Stevens or rather the comments he made.

Who on earth is Glenn Stevens?

He is the Governor of the Reserve Bank of Australia.

What damaging thing did he say that caused the Aussie to be punished the way it did?

He stated that the RBA favors a lower Aussie over cutting interest rates and that the preferred exchange rate for the AUDUSD would be closer to $0.85 than it would be to $0.95. 

The issue here is that he more or less ruled out interest rates cuts which is bullish for the Aussie, but prefers to see a lower Aussie which is bearish to a degree. Keep in mind the RBA has little influence over the exchange rate other than cutting interest rates or printing money. Overall traders may be a bit confused and if the RBA does not engage into idiotic money printing like the US Federal Reserve or the Bank of Japan than overall the Australian Dollar is likely to strengthen regardless of what Stevens prefers.

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