Most of the big hedge fund trading teams are back at full strength after the Northern Hemisphere holiday break and everyone is looking for the next trend to jump on. Increasingly negative economic reports out of China mean that the short-AUD play is back in vogue but timing is an important issue given the price of the carry.
EUR/AUD has rallied by over 4% in the last few weeks as big short positions unwound and there is a feeling that we will see further gains. We may see some short-term consolidation between 1.2130/1.2330 before the big players try buying again. The market remains inherently nervous about being long EUR so there will be sharp EUR sell-offs on occasion, making the picking of the correct entry level all the more important.
AUD/USD is in a great big consolidative sideways move so again picking the correct entry level is very important. Look for bears to add aggressively on any rally back toward 1.0400. Personally I’d prefer to wait for higher levels than that but we will have to wait and see how it develops.