Australian Dollar Outlook – trying to base or steadying for a fall?

March 27, 2012


The Aussie Dollar had a bad week then a great bounce last week. It managed to close above the important support zone in the 1.0370/1.04 region we identified.

It sits this morning comfortable atop 1.05 and more than 2 cents above the lows from last week.

Tough time for some traders no doubt and one of my systems is still short and more than 100 points out of the money and getting close to being stopped out – it is a small percentage of capital position though.

So let’s have a look at what might be going on with a few charts.

This first chart from FXPro on my iPhone simply highlights the support below and the downtrend resistance from the recent high at 1.0857.

This second chart is the one I’ve been using more often from Barcharts which also has the Bollinger Band cloud I use with the 15 day moving average as well.

On a combination of both these charts I’d say the Aussie has made a vey important short term base and is nearing resistance to tell us if we have to revisit and retest to prove support or a probe to the topside is in the offing.

At present it looks like I was both right and wrong last week. Right to highlight the old resistance zone which is now acting as support but clearly wrong and out of the money on my thoughts the low could be in the 1.02’s even 1.01 region.

It’s a messy time but perhaps we can get a guide from other markets.

The Euro, as you can see below is trying to break higher – incongruous as this seems to me on a subjective level. So that bears watching as it tells us something about the USD – which of course is the other side of the Aussie Dollar.

Equally the S&P 500’s performance overnight was also good and while this equity rally keeps on keeping on its going to be unlikely the Aussie Dollar bears can get the upper hand.

This is certainly the case while Fed Chairman Bernanke reiterated the commitment to low rates in the US.

So, where does that leave me?

Guessing, feeling, that the momentum swing in the Aussie Dollar, US Dollar and Euro might have a little bit more room to run yet – Bernanke’s comments support this view.

So I guess it might be time to recognize this might just be a big old range trade and position accordingly until the transition to the next trend, whatever that may be, becomes clearer.

Have a good day

Gregory McKenna

Sent via WordPress for iPhone

Remember folks usual disclaimer. This is not advice, I have not taken your personal circumstances into account and you do not have access to my stops on money management tools


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2 Comments on “Australian Dollar Outlook – trying to base or steadying for a fall?”

  1. Matt Says:

    You can’t win them all – brilliant blog though…lots of signal, low noise.
    Any thoughts on the slow burn return (if true) to “old normal” AUD behaviour?


    • Gregory McKenna Says:

      Thanks Matt…

      I think the Aussie wont revert to traditional drivers until we see a normalisation of global interest rates which is some way off…having said that thought the framework I use which is a ground up with a macro overlay still works very well and still includes all the “old” drivers so i’d argue that it is acting normally just that the weightings of 1 or 2 of my 5 drivers have increased materially. Congruent with this is that the developed world is a basket case and we, Australia, stand out as a safer haven than many traditional investments.

      Things will change in time but not yet i wouldnt think – best we can hope for at present is a dip and hold into the mid 0.90’s but that still appears some way off.


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