We noted yesterday that that the Australian Dollar was testing resistance in the 0.7054-0.7247 price congestion area with negative divergence on the Slow Stochastic oscillator hinting at a near-term top. We now see the pair has shown a Hanging Man with bearish candle confirmation, pointing to a downward reversal from here. Enter short at market above 0.7054. Set stop-loss at 0.7380 above the 10/07/2008 wick high. We will initially target just below 0.64: this lies towards the bottom of the range in place since October without asking too much yet still offering a better than 2:1 risk/reward ratio. Importantly, this will be a soft target (meaning we will look to it as a reference level rather than the area where we will place a hard take-profit order) as we expect considerable US Dollar strength in the coming 3-6 months.
