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.
AUDUSD monthly chart 2013 – present
NZDUSD monthly chart 2013 – present
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.
Overlay AUDUSD, CSI300 and China A50 showing positive correlation from beginning Feb ’16 to present | Source: Investing.com
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?
AUDUSD – ChinaA50 daily chart overlay, March 2016 – present
AUDUSD – China A50 4-hourly chart overlay, 07 August 2016 – present
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Soh Tiong Hum is Director of TerraSeeds Market Technician Pte Ltd. TerraSeeds is a trading educator in Singapore since 2005.
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"I do not have a financial advisor's license. I am not qualified by any regulator to give financial advice. I do not know you the reader. Your investment means and motive may be different from me. My posts here are based on observations and meant for education. I am not responsible for for any consequence from your actions."