Putting the use of the word ‘crisis’ in context

Last Friday September 23rd, the British Pound started seeing accelerated weakness against various currencies and most prominently against the U.S. Dollar. The ‘noise’ of calling it a crisis continued on Monday September 26th.

Readers of the September 24th edition (last week’s) of ‘Macro Extremes’ would have seen the GBP was already featured in the Oversold section.

From its close of 1.1256 on Thursday September 22nd it has fallen to an intra-day low of 1.04. Albeit a 7.5% move within 2 days is worthy of note.

Today, the GBP/USD is almost back to its price seen (1.1168) on that Thursday. Quite a roundtrip but hardly a crisis and more appropriately a reminder to taking a look if prices were already at an extreme and understanding if this is a continuation of an existing downtrend or an exhaustive move which catches the ‘noise-worshippers’ out?

On the week, the GBP/USD rose 2.8%.

Yet….we don’t hear the word ‘crisis’ being bandied about.

Some FX traders have lost 6% in a week, shorting the British Pound against the USD, at its lowest ever level.

Cleverly, I hope there were many bought Sterling at Sterling at what was nearly a 4-sigma event.

The previous all-time low vs USD was 1.0545 seen in March 1985.

Inversely, this past week we saw the Australian Dollar fall 3.1% against the Euro, it sank 4.7% versus the British Pound, declined 1.9% compared to the USD and has fallen 5.2% against the Yen in the past 3 weeks.

Once again, perspective and context is advised.

October 2, 2022

by Rob Zdravevski

rob@karriasset.com.au

The AUD/USD is nearing a low

On September 7, 2022, I dispensed comments to clients about my views on the AUD/USD.

I cited how perverse it was that the Aussie was strong versus the EUR, GBP and JPY….

while it continued to weaken against the USD.

This so called perverse scenario is because you don’t generally see AUD strength against other G-8 currencies whilst it inversely exhibits weakness against the USD.

Then, I thought it was appropriate for operational businesses (whether requiring to do so physically or for hedging purposes) is to…….

1) take your strong AUD and buy either GBP, EUR or JPY (the Aussie has since weakened 1.4% against these crosses)

but then…..

2) prepare to sell your strong USD and buy AUD 

Back then (Sept 7th), the AUDUSD was trading at 0.6717.

My advice said that it needs to trade below 0.6680 if it is to make a move to 0.6464.

But I noted that the AUD/USD is within the process of being in the lower quintile (the last legs) of the larger downtrend which commenced at 0.7600 in April 2022.

Now, I think it’s time to prepare for the 2nd piece of that previous commentary.

Overnight, the AUD/USD broke below the 0.6680 level mentioned.

At the time of writing it is now trading at 0.6590.

It has weakened 2.6% since September 7th, 2022.

The velocity of the downtrend is increasing, albeit slightly.

However we are nearing interim support of 0.6560

I still see the 0.6460 region as major support.

My work and probability suggests locking in hedges or actually Selling USD / Buying AUD around this 0.6580 – 0.6460 mark is prudent.

A visit to 0.6340 would be an outlier 4 standard deviation, only seen twice in the past 20 years.

  • not personal advice, see disclaimer

September 22, 2022

by Rob Zdravevski

rob@karriasset.com.au

Watching Currencies – AUD/JPY

Correlations – AUD/JPY and the ASX 200 Index

September 5, 2022
by Rob Zdravevski
rob@karriasset.com.au

Watching Currencies – AUD/JPY

Correlations – AUD/JPY and Australian 2 year government bond yield

September 5, 2022
by Rob Zdravevski
rob@karriasset.com.au

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