Australian dollar downside targets

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The AUD traded a 1.0390 to 1.0790 range for a couple of months before breaking out recently and trading all the way up to 1.1080. The ructions in markets have it threatening the bottom of this range as I write, with the AUD at 1.0442 as Europe has walked in and started selling in earnest anything with a risk element in it.

Now, I made a little bit of money and lost a little bit of money on the break higher in the AUD but that’s the way it goes with trading and it’s not like I was overly committed to one side or the other in a trading sense – it’s just a trade. But what I want to highlight here is both a line that Avid Chartist pointed out when the AUD tried to break higher and then the risks around the current AUD price action if a move below 1.0390 finally occurs.

Firstly the monthly chart:

It’s a clear rejection of an interesting line which, technically tells us the upside was/is limited as Avid Chartist pointed out at the time.

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So if we know the world is going risk off, properly this time I think, and the AUD is biased to the downside then what is the outlook in a scared world where all the AUD bulls retreat to their home currencies or index positions.

As you can see the AUD has decisively broken the uptrend from the lows in June 2010. That’s the first bearish sign and something all traders will now be thinking about when deciding which way to position.

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You can then see the green horizontal line which is the low for the last 4 months at 1.0390. A break of this and close at the end of the week would be another bearish signal and a decisive signal of lower levels.

As an aside, I’m sitting hear listening to Bloomberg TV and have been hearing all day supposed guru after guru saying it will bounce just like last year. Reminds me of the NASDAQ crash – that’s almost enough for me to just sell it outright and come back in a month. But I digress.

This 1.0390/94 level is 50% of the move up from 0.9700 earlier this year implying even more support and even more important if it breaks. If it does then the AUD is biased to 1.0231 and ultimately and probably 0.9706 where it all began back in March this year.

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Now I have to declare an interest – I am an AUD bear. Both because I think the safe haven clap trap has been overblown and has thus skewed market positioning at the moment but equally because it is my hope that it still does what it has always done and adjust down with the weakness that is reasserting itself in the global economy and now markets. This is obviously diffrent to the more bullish technical outlook which was published a couple of week’s ago but on the basis of the AUD’s inability to break and hold above 1.1013 then it looks, currently, like a false break and we must change our view if the outlook changes.

It is a volatile time and there will be snap backs. Tonight sees the release of non-farm payrolls probably the single most important economic release on the planet and we usually get a reaction. It is one of my favourite nights of the month to trade but it is also likely to be fraught tonight after such a fractious last two weeks of trade.

If you are trading good luck and make sure whatever and however you are trading that you match your position sizes to the volatility.

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Oh and my call? 0.9700 in the next two months.

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.