With the dollar “finally falling out of bed” I’ve scratched a couple trades for a 2% loss.
USD has given us more than enough chances to “ditch” and in all honest I hung in there with a couple smaller “much longer” than I should have, suggesting some days ago that “I’m not interested in catching a falling knife” not having much conviction in hanging around “long USD”.
And so it goes.
Otherwise, I’m highly suspect of the “sudden surge” in commodity related currencies hence initiating some “short AUD” ideas over the past 48 hours.
It’s not often you’ll “ever” see a currency trade sideways a full month, then drop “lower” and out of the range…..then come screaming back to highs, near or even above the range highs.
A full “rinsing” if you will – and unlikely a sustainable move.
As much as the short term action would have one thinking that “AUD is on fire” – it’s really only now bumped into well recognized areas of overhead resistance in a number of pairs.
Seeing something like this “scream 300 pips higher” in a matter of a few short days, generally has it retrace a large portion of the move, coupled with ideas from my previous posts ( suggesting that “short AUD” essentially works as a play on China as well ) I’ll have no trouble holding / adding to these positions as things develop.
The Technical Reality Behind AUD’s Resistance Dance
Let’s get specific about what we’re seeing here. AUD/USD has kissed the 0.6850 resistance level three times in the past week, each attempt weaker than the last. This isn’t coincidence – it’s exhaustion. The same pattern is playing out across AUD/JPY at 97.50 and EUR/AUD at the 1.4850 support zone that’s now acting as resistance.
What makes this setup particularly attractive is the volume profile. The spike higher came on relatively thin liquidity, classic of a short squeeze rather than genuine institutional accumulation. When you see 300-pip moves accomplished with such little underlying conviction, the market is essentially telegraphing its next move.
China’s Shadow Looms Large
Here’s where the AUD short thesis gets interesting beyond pure technicals. Every AUD rally since 2020 has been built on China optimism, and every significant decline has coincided with Chinese economic reality checks. The current surge coincides perfectly with renewed chatter about Chinese stimulus, but the underlying data tells a different story.
Chinese credit growth remains anemic, their property sector continues to implode in slow motion, and export demand is facing structural headwinds that no amount of fiscal spending can fix. When the AUD inevitably reconnects with these fundamentals, the move will be swift and brutal. It’s not a matter of if, but when.
The Dollar’s Decline Creates False Narratives
The recent USD weakness has created a dangerous narrative that all non-dollar currencies are suddenly bullish. This is lazy thinking. The dollar can weaken while specific currencies like AUD still face their own structural challenges.
In fact, AUD’s strength against a weakening dollar makes this an even better short opportunity. We’re getting elevated entry levels that wouldn’t exist if the dollar was holding firm. When the dust settles and the dollar finds its footing, AUD will face the double whammy of both dollar strength and its own fundamental weakness.
The cross-currency dynamics are particularly telling. AUD/CAD has failed to break meaningfully higher despite oil’s recent strength, and AUD/NZD is showing signs of exhaustion after a brief spike. These are the subtle hints that institutional money isn’t convinced this AUD rally has legs.
Risk Management in a Volatile Environment
Positioning for this trade requires patience and proper sizing. The initial move against short positions could be violent – we might see another 100-150 pips of upside as the last shorts get squeezed out. This is why building positions gradually makes sense rather than going all-in at the first sign of weakness.
Stop losses should be placed above the recent highs with enough breathing room for false breakouts. The market loves to trigger stops just before reversing, so giving yourself space is crucial. The reward-to-risk ratio on this trade easily justifies wider stops.
What we’re looking for is a clear break below the recent consolidation lows, followed by a failure to reclaim them on any bounce attempt. That’s when the real selling begins, as algorithmic systems join the party and momentum traders pile on.
The Bigger Picture Opportunity
This isn’t just about a short-term AUD pullback. We’re potentially at the beginning of a multi-month decline that could take AUD/USD back to the 0.6200-0.6300 zone where genuine value buyers might finally emerge. The market dynamics suggest this move could unfold over the next 8-12 weeks.
The key is recognizing that strong moves higher often mark the end of trends rather than the beginning. When currencies make dramatic moves on hope rather than reality, they tend to give back those gains just as dramatically when reality reasserts itself.
Smart money is already positioning for this reversal. The question is whether retail traders will continue chasing the momentum or start thinking one step ahead. Based on the technical setup and fundamental backdrop, shorting AUD strength remains one of the highest probability trades available right now.
What do you think about metals here?
I was seconds away from picking up a number of miners here today, but see that Gold has kinda “popped” into resistance.
I think it makes sense to sit tight another day er two before jumping on em.
Governor Stevens talking at 2:30pm today (Pacific Time); could help our move lower in AUD or at least provide some more opps to continue building the position. I’ll be starting my long GBP/AUD again if AUD goes up from this. Happy with my AUD/USD and AUD/JPY shorts for now.
There is no question ( after this massive spike ) that Stevens will “talk down AUD” NO QUESTION AT ALL.
So…..we shall see!
Stevens speach not moving AUD, if they’re OK with current rate AUD will go up further.
I can’t help but be suspicious of this AUD move in a larger context in that……take a look at AUD/JPY 4h chart for example…and this massive “run up” doesn’t even look like it’s part of the same chart!
Not reading to far into things but….it just seems a little out of left field.
one can here assume that the AUD is a little higher than where it was suppose to be ,, and RBA gov Steven in his speak might say this and then may be he ll talk it down like they did to a higher AUD and it will drop down ,,
my thinking ,, what do you think Kong ??
Jeesh Gary pumping miners best to def wait now for sure. Ha
He’s pretty close here actually as……..
A couple cents here or there – the trend has finally shifted in “favor” of buying.
It’s certainly possible that these little stocks / companies fluxuate a bit longer down here but in all – I would agree that 6 months from now I think we’ll be pretty happy with entry “anywhere around here” in the next few days / weeks.
I hope he’s making a buck er two with legit / credible advice as opposed to well……..you know.
Hey Kong….. I have AUD>USD daily on the cusp of a daily positive fire here….. the 8hr has played it’s course now….. even for a countertrend trade – I am still liking the Aussie here on this daily fire should it play out….
I could be completely wrong here but just playing what’s in front of me in real-time….. USD/CAD has finally given me a break….. I have a daily Neg fire here as well – firing off on todays action…. so will hold this here to even pull out some profits with a little further luck!!! We will see how this plays out….
USD>JPY still running a daily set-up here but going the wrong way for me currently…. have been short the pair…. I daily fire has be bailing for sure…. it’s close…..
With things heating up again with Russia I was pretty sure Putin was not done playing chess….. it’s just the start…. posturing will continue on a more aggressive scale….
Jobs – tomorrow should be weak driving things on the current path…. gold tested & closed $1350…. tomorrow could be very interesting….. most will be left chasing…. Asia should continue buying here as they have done for most of the week….
Cheers Schmed
I tend to balance “both” the fundamentals / technicals to get an overall trade idea as…..where can AUD really go from here?
And if jobs are “weak” then the current path is?? Straight for the moon man….as data has absolutely “zero” to do with “anything” as far as U.S equities are concerned.
When the machines on Wall Street switch to “sell” things will turn…..I doubt it will be tomorrow.
I’m tired on “daily considerations” and am more or less just starting to position / scale in a broad stroke sense – short.
Equities and risk may very well run to SP 2025’ish for all anyone knows, with fundamentals in the U.S so clearly out the window.
At this point it’s not really even trading to me as much as it is just sit and watch the show a while longer.
Yup jobs weak stock rally for now – taper… taper … taper love it….. however at some point logic will kick in…. no jobs yet markets rally? really ok SMT selling here you can bet on it… hey maybe I am out to lunch – could very well be…
Aussie – how knows…. right now in real-time it’s up…. daily fire if positive will finish the move….. wash & repeat…. until the next set-up…. that’s all I can do in this environment….. day by day…. trade by trade…. up is down… down is up…
Russia has a ACE up it’s sleeve & I think it’s China…… Gold $1400 test tomorrow well within reach… but that’s just me…
I hear you Kong….. not in disagreement just doing what I can to stay alive….
You and I both Schmed….staying alive and taking things one trade ( or two ) at a time.
Something a foot in the DXY….. very compressed squeeze in the 5-30min….. I know these lower TF don’t mean much in the currency world so really don’t know how this is going to react here….. but if this was in stocks or PM’s I would be looking for a pretty good directional move ahead….. we will see how these fire off… here!!!