Forex Update

Some wacky moves in forex during Asian session. Couple of contributing factors, I will try to make some sense out of them.

First of all, AUD is flying due to higher than expected CPI, reported just now. It is running at annualized rate which is way above what RBA is tolerant for. So, maybe another rate hike soon?? Last RBA meeting minutes revealed less than hawkish tone, and some traders even called for a rate cut soon. Well, they are all covering as I type, sending AUD/USD to all-time high. You got it folks - no resistance to speak of. This move is wacking all AUD crosses. I had a small AUD/JPY short on, it is history now. I was out of there in an instant... All of this is going to put some pressure on RBA for more hikes. This said, Australia's economy is mighty good right now and could withstand higher rates for sure.

We also have some weakness in JPY crosses, in continuing risk-off environment. Yen is getting stronger across the board, except against AUD (sadly I ended up with that). This is happening despite BOJ's repeated warnings to intervene any time now, because of Japanese adverse economy consequences due to higher yen. Obviously exports would take a hit with strong domestic currency.

So we have EUR/AUD and EUR/JPY weakness affecting EUR/USD. And Gold, not to be outdone, has decided that it is time to wake up and print yet another all-time high just now.

I would caution against taking big dollar shorts here. It looks like it wants to reverse. DXY falling wedge has developed, if it breaks out to the upside, the buck may get much needed boost, and many traders will call for a dollar index double bottom. Dollar is ultimate risk-off beneficiary; even in debt ceiling crisis it has ability to rally hard, especially if traders really decide to take all risk off. Watch these developments closely.