AUDUSD and NZDUSD may have topped 2016. There are no new 52-week highs, totally retracement-looking, no bullish reversal pattern. Next step: finding support. But wait! There is also a broader picture since AUDUSD has demonstrated a high positive correlation to China’s stock market. No new 52-week highs, totally retracement-looking, no bullish reversal pattern. Next step: finding support.
Topped or not so what?
We can definitely trade AUDUSD and make money from it’s movement but my interest doesn’t stop here. Since Australia is a key commodity provider that enjoys a stake in China’s boom, there might be a connection between the AUDUSD and the Chinese stock market. In March, I wrote this piece ‘Long AUDUSD sound as long as China stock indices are up‘ where I observed that there is a strong positive correlation between AUDUSD, China A50 and the CSI 300 (Shanghai Shenzhen Index).
This overlay of AUDUSD, CSI 300 and China A50 shows high positive correlation among the three from beginning February 2016 recovery.
1. Bullish China stock market is also bullish for AUDUSD (commodity exports to China).
2. A divergence in one of the three could be meaningful indication of potential turning point.
3. Long as this correlation stays intact, weakening CSI 300 and/or China A50 will introduce weakness to AUDUSD also.
A quick inspection shows that that the previous observation appears to be still valid today. Besides a top in AUDUSD, are we also looking at a top for Chinese equities?
Director, TerraSeeds Market Technician Pte Ltd. Trader, investor. @sohtionghum was picked ‘Top 70 Forex Twitter in 2015’. Operates multiple strategies.
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