The current state of the Australian dollar from a technical perspective is rather complex. But I’ll try and cover the main issues without boring you too much.
It has of course been in a very strong uptrend with other commodity currencies for the past year and so I guess the question of the hour is can it continue?
Now, I don’t profess to have a crystal ball for long term forecasting. I’ll leave that to all of those brilliant “economists” who have an uncanny knack of consistently getting it… wrong!
My job is to make money trading. And although you may not realize it, charts are actually used as a risk management tool more than a forecasting tool.
Therefore my comments about the AUD are focused on the current state of the market and where you should be wary or looking for opportunity.
A quick look at the weekly chart of the Aussie shows it is in a very strong uptrend at the moment. The market took five years to rally from 60c to 94c between 2003 and 2008. We’ve rallied that far in a year and a half.
That’s truly amazing stuff.
With the momentum so strong to the upside it would be a brave man or woman to stand in the way of this steam train and I would need to see some clear signs of failure before I would start getting bearish on the Aussie dollar.
Also we’re now getting very close to the 2008 high of 98.5 cents and the market is so focused on reaching parity that I wouldn’t be surprised to see some ‘blow off’ rally attempting to take out the 2008 highs and aiming for parity.
The music could then easily stop and we could see a false break of the 2008 high which could then be a great shorting opportunity.
If we get up close and personal with a daily chart of the AUD we can see a sideways distribution forming:
We’ve already had a false break of either edge of the range and have now powered through the midpoint or ‘Point of Control’ of the structure (Slipstream Trader members will know what I’m referring to here).
The short term trend has also turned up so there’s a chance now that the AUD is on the verge of heading for another leg up. The points to be wary of on the way up would be around 95.5c which is 50% outside of the current range and is an area where it could fall over.
If it can burst through there the next stop is the 2008 high of 98.5c and then parity.
All bets are off if we see a sell off beneath the recent low of 87.3c. This would confirm the failure of the last four months distribution and we could see a more sustained selloff if this were to occur.
Regards,
Murray Dawes
Editor, Slipstream Trader
{ 4 comments… read them below or add one }
unless of course China begins tightening its fiscal and monetary policy which means its thirst for Australian resources declines. The AUD being a commodity currency may not perform to well in that environment
I find that this quote sums it up very well.
“While the headline figures reads MOPE, the true fact was approx. 80% were part time (other words – CASUAL JOBS). Such labor output does not add value. Factor in another rate rise within next 2-4 months and Australia, the debt laden society, WIL BE FOLLOWING THE USA in its footsteps. Many think the resource sector will save Australia. Think again. 65-70% of GDP is property related, so watch what another few rate hikes in 2010 does down-under to this rate sensitive industry.
Total debt in Australia is the same at the level in US, although Australian Federal government. debt is not as high a % of GDP as in the US, UK or other Western Europe nationals.”
Dunno about parity, AUD seems to be encountering some pretty fierce resistance at the 93-94c level despite there being pretty much all good news for AUD (interest rate differential, economy appearing to be in better shape, commodities being their heads off). It would take some pretty bad news from the US for it to go to parity and I am not sure that sort of news is there.
Got to remember what happened to the AUD when Lehman failed.
No one knows what the next bolt out of the blue might be but I’m amazed that this deck of cards has been rebuilt so quickly to the same height again. The smart money will be locking in their profit around parity.