Speculators have remained overwhelming bullish on the Australian dollar (FXA) for almost two years. Last week, they made a quick switch to net bearish positioning. Net contracts went from 40,720 net long to 12,660 net short. Open interest fell from 157,029 to 105,270, so it appears that bullish speculators made a hasty retreat rather than bearish speculators making a rapid advance.
Source: Oanda’s Commitments of Traders
Perhaps a bunch of bullish speculators decided to close out positions ahead of year-end and that move ends the story. If not, this bearish switch is interesting coming in the wake of a strong Australian employment report that had me wondering whether my bearish assessment on the Australian dollar could hold. I am now incrementally more confident on that bearish assessment.
From a technical perspective, the Australian dollar continues to make bullish moves. I even decided to close out my AUD/JPY short as a precaution. From a bearish perspective, there is no need to renew the position until/unless AUD/JPY tests resistance at the right shoulder of the hold head and shoulders (H&S) pattern and/or breaks down again below its 50 and 200-day moving averages (DMAs).
Source: FreeStockCharts.com
The Australian dollar is even making more progress against the U.S. dollar despite the recent rate hike by the U.S. Federal Reserve. AUD/USD is pushing against resistance at its 200DMA.
Source: FreeStockCharts.com
So going into 2018, I am likely to be sitting in a holding pattern waiting for a clearer bearish signal from the Australian dollar.
Be careful out there!
Full disclosure: no positions
Maybe it is just delayed but I was expecting more of a rally in commodity currencies at year end.
Hard to see any major movers not priced in. Repatriation of USD with recent Trump developments might be usd positive marginally and the China slowdown after Q1 will tend to offset that. Seems the Chinese are serious about taking the fizz out tier 1 and 2 property and that may well bite in Q2, until the next stimulus exercise.
I am not trading forex here. Just sitting it out. Personally, I don’t see any convincing drivers, just churn. I recently sold an investment property to get a cash buffer. Have 5% cash in my portfolio now. Was 10% leveraged until recently. Am now 95% property, 5% cash allocation. Still things could keep going like this for another 2 years or even longer before an equity bear market. I thought about buying Vanguard total world etf with the cash but I think I will leave it is cash.
Do you have any overall leverage DD and what is your asset allocation ?
And also, Merry Christmas and happy new year. Really like your blog and hope you have a good 2018z
Funny – I actually don’t know my % leverage and couldn’t tell you my exact asset allocation. I am overwhelmingly in cash, excluding property, to a fault. But I like the cushion given family responsibilities. My investments are overwhelmingly in retirement accounts, and my trading capital is a sliver of my overall assets.
Forex really churned me in December, and I have no good sense for a 2018 theme. We will just have to see.
I am paying more attention to cryptocurrencies now, but have zero intention to trade them. I am drawn to the stocks that are, or pretend to be, involved in crypto in one way or another.
Merry Christmas and Happy New Year!
Reader like you keep me motivated! It’s just a small crew, but I truly appreciate it!