BULA!
First post for a little while as I’ve been in Fiji with the family during the New South Wales school holidays and even though Mother Nature hit the islands hard, the Fijians have bounced back strongly and are at their convivial best. The infrastructure still needs some work and hopefully the Australian government is helping because I know lots of my fellow citizens have.
Anyway, to the markets.
The Australian dollar is trapped at the moment as you can see in the chart below:
It bounced off significant Fibonacci support around 1.0240 which is the 61.8% retrqacement of the move from 0.9860 to 1.0859 and represented by the blue line above. Certainly the low was 1.0225 but I’m not quibbling as it didn’t close below support, rather the low close on April 10th was 1.02493. Add to this the fact that it bounced strongly away from this important level and we have a fairly important support.
Equally, the fact that the Aussie has been unable to breach the 38.2% retracement level of the fall from 1.0859 to 1.0225 which comes in at 1.0467 (high was 1.0451 on the 12th and 13th of this month) and that the Bollinger bands are tightening up, and indeed the Aussie is trapped inside the first standard deviation, while at the same time the average true range is contracting tells you just how the outlook is balanced.
And this is the key for me – the global economic outlook is not good – but crucially this is no surprise to anyone. Even as the European crisis seems to be doing its cyclical kick off again for this year, markets seems blase in the extreme. I wont walk through the 5 drivers specifically – that would require more analysis than the first day back at the desk might be able to genuinely provide – but it seems difficult to me to see a sustainable topside break in the Aussie dollar.
Now, that doesn’t mean there is an imminent move lower necessarily either – that’s the nature of ranges. And ranges aren’t bad for business really are they – at least you can plan for a while, but they never last for the Aussie dollar either
But what this does tell me is that the longer the Aussie dollar stays in this reasonably tight range, the greater the ammunition for a strong breakout. Last week the CFTC data showed the bulls went a little longer for the first time in a while and there in lies the catalyst for a break out eventually.
Key levels remain 1.0225/45 and 1.0450/70 – trade the range until it breaks but when it does we might get a nice old trend emerging.
Gregory McKenna
www.twitter.com/gregorymckenna
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.