am/FX: Short AUDUSD

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Commodities looking rather sus.

by Brent Donnelly

November 18, 2022

Totally reasonable

Christmas present idea

Current Views

Short AUDUSD @ 0.6711

Stop loss 0.6811

Take profit 0.6555

November 18, 2022

Short AUDUSD

I think this is a good place to take a shot at short AUDUSD. You have the 100-period and 200-period MAs on the 30-minute chart crossing over and extreme weakness in commodities just as AUDUSD has rallied a percent off the lows on the back of US equity strength. The way oil and copper are trading, I don’t see AUDUSD thrusting up through the highs.

This is consistent with my broader view that we are in a consolidation / chop phase here, not a new USD down regime with looser financial conditions. You can see in the chart that copper is grinding lower, in contrast with AUDUSD. If all were peachy on the China front, I don’t think oil would be under $80 and I don’t think copper would be making weekly lows. Trade details in the sidebar.

30-minute AUDUSD with 100-period, 200-period and copper

This article from the FT outlines the challenges of reopening in China and why it will be slow and steady, not binary. Key excerpt:

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China’s doctors have a blunt message for Xi Jinping: the country’s healthcare system is not prepared to deal with a huge nationwide coronavirus outbreak that will inevitably follow any easing of strict measures to contain Covid-19.

The warning for China’s leader was delivered by a dozen health professionals — including frontline doctors and nurses and local government health officials — interviewed by the Financial Times this month, and echoed by international experts.

“The medical system will probably be paralysed when faced with mass cases,” said one doctor in a public hospital in Wuhan, central China, where the pandemic started nearly three years ago.

The warning also serves as a reality check for many in China and around the world hoping that Xi will end his hallmark zero-Covid policy. Experts said the policy meant China had failed to prioritise building robust defences for a mass outbreak, instead focusing its resources on containment.

According to frontline staff, nearly three years into the pandemic, China’s healthcare system is far more strained than at the start. Scarce funding, staff and medical resources have been redirected towards pandemic controls instead of preparations to treat the most vulnerable.

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Speaking of weak commodities

I continue to be fascinated by what’s going on in oil and the relative calm in oil and gas production stocks. Here’s a scatter of Exxon Mobil stock and NYMEX crude oil. I understand there is more to just XOM than the oil price, but it’s still rather intriguing.

XOM stock vs. NYMEX crude with recent data circled and today in red

I just can’t imagine how one of the most popular trades in the world (long oil producers) can be positive EV when oil prices are this low and have such negative momentum. We shall see!