Australian Dollar Outlook – bulls on the run

April 4, 2012


Well the Chinese PMI bounce faded quickly for the Aussie Dollar didn’t it. As I said on Sunday/Monday,

I am looking forward to the next few days trade before Easter because it will tell us a lot about where the market is positioned and what it believes.

So we had a brief rally earlier this week but with the bears firmly in control of the Aussie Dollar as you can see in the chart below the gains were short-lived and the downtrend has been reinforced.

Certainly the RBA signalling that it is going to ease yesterday was a catalyst for some weakness but most of it came overnight when, perversely, the Fed minutes signalled that the US economy is not weak enough for further easing. Markets are nothing if not dysfunctional at times and if this reaction in the overnight sell offs on equities doesn’t just highlight this once again and show the rational market fraternity that humans aren’t lab rats I don’t know what will.

Another thing about the RBA that I found interesting is the fact they know they are going to ease but are using every trick in the book not too. As I wrote yesterday I’m struck by they way they are operating at present fighting the last war. This won’t help investors confidence much even though it’s at the margin.

Anyway let’s have a quick look at the price action.

Same same as they say, double top, clear down trend, now trough the 200 day moving average, the 50% Fibonacci retracement, approaching the 61.8% retracement at 1.0240 which is the last line of defence before a run under parity (at least in a Fibo sense) toward the second green line at 0.9860. And have a look at the daily candlesticks, the rallies are completely engulfed by the following days sell off – that seems like a market with a weak underlying structure.

I’m hearing Australian exporters are in the 1.02 region so this is probably going to be a good test for this downtrend of the last month or so.

For the moment though the bears are in control of the Aussie Dollar the 1.0200-40 zone is going to be big support.

You know my view, I think it’s headed under parity again – I don’t know when but it seems only a matter of time for me now.

Have a great day

Gregory McKenna

Please remember these are not recommendations for you to trade these are my views and I have my risk management tools and risk parameters that you do not have access to. Thus, this blog is for information only and does not constitute advice. Neither Greg McKenna nor Lighthouse Securities has taken your personal circumstances, objectives or financial situation into account. Because of this you should, before acting on this information, consider its appropriateness, having regard to your objectives, financial situation or needs.

If however you do need advice on Investments, Economics, Funding and Liquidity, Interest Rates and Forex and Derivative markets we are happy to help.

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  1. The Australian Dollar remains vulnerable | Lighthouse Securities - April 5, 2012

    […] Dailies show a very clear downtrend as you can see below but we are in the support zone I highlighted yesterday in my piece. So I’m not expecting a crash just yet and indeed we may even get a test toward […]

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