AUD/USD outlook: Disappointed bears forced to run for cover
- Fed tapering is theoretically bullish for the USD and bearish for risk trades, in other words 100% bearish for AUD/USD. Unfortunately for the current-day bears, it’s been a matter of sell-the-rumour-buy-the-fact. This ‘taper’ expectation has been in the market since the AUD/USD was at 1.05 and we’ve seen it fall to .88 on the back of this. The clever guys sold early and took their profit. The vast majority as usual missed the move and got overly bearish at the bottom. Now we get the ‘event-looming’ short squeeze. Some things never change.
- The AUD has unwound some of its long-term strength on the crosses but I suspect that there could be more of the same against currencies like the NZD and the GBP yet to come. So exhaustive short-covering rallies in the AUD/USD will still offer very profitable swing trade opportunities imho but patience is needed as always.
- If you can’t sleep without being short AUD heading into the FOMC, then maybe AUD/JPY offers the best risk-reward option? The market is short of Yen already and if the Fed forecasts are lower than expected, allied with the $20billion taper, then we could see the risk trades take a hard hit.