A rising US dollar and falling commodity prices should continue to pressure the Australian dollar at least for the next few years. Similar declines are playing out across the commodity market. Aussies capacity to hold 70 despite, despite deteriorating 'fundamentals', has been frustrating the bears since early September. The Aussie's unexpected strength, liken to a vampire that just refuses to die by the bears, will dissipate once the flow of leverage and sentiment concentrate and reverse in the months ahead.
Investors, largely driven by emotions rather than discipline, tend to focus on volatility rather than the message of the market. This tendency prevents them from recognizing better opportunities in quieter markets.
Insights constructs and interprets the message of the market, the flow of sentiment, price, leverage, and time in order to define trends within the cycle of accumulation and distribution for subscribers.
Summary
The BEAR (Price) and BEAR (Leverage) trends under Q2 accumulation after the seasonal high on the first week of January position the Australian Dollar (Aussie) as an aging bear opportunity.
Price
Interactive Charts: FXA, FXA PF
A negative long-term trend oscillator (LTCO) defines a down impulse from 90.47 to 72.03 since the second week of September 2014 (chart 1). The bears control the trend until reversed by a bullish crossover. Compression (white circles) within the CEC cycle generally anticipates this change.
A close above 96.89 jumps the creek and transitions the trend from cause to mark up. A close below 62.78 breaks the ice and confirms continuation of mark down.
Chart 1
Leverage
A positive long-term leverage oscillator (LTLO) defines a bear phase since the third week of January (chart 2). This focuses the down impulse (see price).
A diffusion index (DI) of 26% defines Q2 accumulation (chart 3). A capitulation index (CAP) of 18% supports this message (chart 4). DI and CAP's trends, broader flows of leverage and sentiment from extreme accumulation (green dotted line) to distribution and extreme fear (green dotted line) to complacency supporting the bulls (red arrows), should not only continue to extreme concentrations but also restrain downside expectations until reversed (see price). Continuation of the decline under these trends, a sign of weakness (SOW), would be bearish for Aussie longer-term.
Global capital (capital flows), the driver of Price and Leverage, clearly continues to reject Australia's socialistic solutions to its economic problems (1, 2, 3). The majority of Australians, through financial losses and economic pain, will support this view eventually.
Chart 2
Chart 3
Chart 4
Time/Cycle
The 5-year seasonal cycle defines weakness until the fifth week of March (chart 5). This path of least resistance restrains upside expectations (see price).
Chart 5