Monday, September 15, 2014

Iron Ore surge does nothing for the Aussie dollar | Bearish engulfing candle has appeared on the AUDUSD weekly chart

The news from Down Under yesterday, that the price of Iron Ore had taken a respite, on the back of seasonal restocking by Chinese steel mills (no doubt delighted at the opportunity to do so at such prices), from the sustained fall it had been experiencing in recent times and risen by as much as 4% on the day, did nothing to halt the slide in the AUDUSD pair.

Once again, it appears that at least one driver of this fall is China. In the past, whenever Chinese growth has faltered, the Chinese government has stepped in with stimulus measures, mainly centred on infrastructural development. Now, the regime of which Mr. Xi is the head has given strong signals that this will not be the case this time round.

Cue the movement of institutional investors out of the Aussie dollar. Strategists are also, no doubt, eying the upcoming termination of QE in the USA and considering that now might be a good time to consider dismantling the Carry Trade in the Australian unit.

Bearish engulfing candle has appeared on the AUDUSD weekly chart

Last week’s precipitate fall has resulted in the formation of a bearish weekly engulfing candle on the AUDUSD chart (see above). From the Technical Analysis (TA) viewpoint, this will be seen by practitioners as a sign that the selling is expected to continue.

In the past, such a formation, when it appeared either singly or as part of a combination of weekly candles at what might be the top of a swing, has resulted in a continuation of the selling activity. Also yesterday, price dipped below the psychological 0.90c level. It subsequently moved back over this important round number support but, as of the time of writing, is now heading down towards it again. It looks like there could be a battle between the bulls and the bears at this price point. Gird your loins.

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