Diary of a Financier

Aussie Dollar to Enter Blowoff Top, China’s Opportunity to Transition toward Consumption/Balance

In Capital Markets on Sat 15 Sep 2012 at 17:14

Despite all the fundamental warnings, the Australian Dollar (AUD) charts seem ready to launch into one, last blowoff top.  For over a month now, I’ve been tracking the AUDUSD weekly fractal, which really frames the classical pattern that’s going to propel the FX pair higher, a bull flag with resistance >1.10:

AUDUSD weekly- bull flag with ~1.10 resistance setting up a blowoff top.

Indicators for all fractals have oscillated in lockstep with the pricetrend, so no warnings from divergences to heed there. I’m following the Aussie Dollar ETF (FXA) as a long candidate, a position I may open when I see confirmation of a breakout above a shorter-term AUDUSD bull flag’s resistance ~1.06:

AUDUSD daily- shorter term bull flag about to breakout above 1.06 resistance.

Remember, this daily bull flag is occurring within a broader, longer-term bull flag, which is more deterministic by definition.  This really resonates to the intermediate-term prospects for the commodity complex.  Recall that I’ve recently opened positions in the Metals & Mining ETF (XME) and the China ETF (FXI).  While both have bounced for reasons like deep value and technical supports, they’re tethered to the fate of the Aussie Dollar.  That’s just the reality of the global commodity trade.  To some extent, China has the most sustainable long-term prospects.  Were a blowoff top to materialize, China would need to capitalize not by accumulating more raw materials for her stockpiles, but by monetizing its surplus materials for the benefit of domestic consumption.  This should provide the Chinese the opportunity to transition their economy from export to consumption-driven (or at least balanced).

–Romeo

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