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AUD/USD Ascending Channel Provides Swing Trading Opportunity

AUD/USD Ascending Channel Provides Swing Trading Opportunity

2011-05-23 16:12:00
Christopher Vecchio, CFA, Sr. Currency Strategist
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The AUD/USD pair has been one of the more active pairs thus far in 2011, trading at or near parity for the first three and one-half months of the year, before surging to an all-time high of 1.1011 on May 2, 2011. Since the peak in the beginning of May, however, affairs have not been sanguine for the antipodean currency. In fact, the AUD/USD pair has fallen as much as 538-pips in the three weeks since its high on May 2, with daily swings of approximately 150-pips not uncommon over this time frame. Representing a measure of risk for the market, the AUD/USD pair’s decline represents a broad-based shift to risk-aversion across the globe. Now, with the pair sitting just below its channel’s regression, and testing two key technical resistance levels, and opportunity to collect profits on an Aussie-Dollar swing trade has emerged.

Levels to Watch:

-Range Top: 1.1135 (Trend)

-Range Bottom: 1.0176 (Trend)

AUDUSD_Ascending_Channel_Provides_Swing_Trading_Opportunity_body_Picture_1.png, AUD/USD Ascending Channel Provides Swing Trading Opportunity

Charts created using Strategy Trader– Prepared by Christopher Vecchio

Suggested Strategy

  • Short: Place an entry at 1.0500 (50-SMA, 23.6 Fibo)
  • Stop: Set the stop to 1.0640 (140-pip risk)
  • Target: The first target is 1.0261 (100-SMA, move up stop to 1.0360), second target is 1.0176 (Range Bottom)
  • Timeframe: 5 to 10 days

Trading Tip The swings over the past few weeks for the AUD/USD pair have lined up neatly with the technical indicators we use to time highs and lows for identifying swing trades. Accordingly, with momentum on the daily chart building in favor of further AUD/USD pair weakness over the following days, a swing trading opportunity has emerged to the downside for the antipodean currency pair. On the 6-hour chart, the RSI is falling, at 39; on the daily chart, it is falling as well, at 43. In support of this notion, the MACD Histogram on the daily chart is showing a widening bearish divergence, with momentum at -41, less than the -30 reading on Friday. Looking back at the 6-hour chart, the Slow Stochastic oscillator continues to trend negative, with the %K less than the %D, at 16 and 39, respectively. For now, with the technicals point towards further weakness, coupled with a fundamental landscape that indicates risk-aversion, the timing for an Australian Dollar short versus the U.S. Dollar appears to be ripe.

Event Risk for Australia and the United States

Both Australia and New Zealand have a combined a decent stream of significant economic data over the next few days, with most of the significant data coming out of Australia. Historically, a week marked by a rate decision, and significant labor market, housing market, and retail sales data usually bodes well for volatility for the AUD/NZD pair.

Australia – Australia has some data due this week, but very little due in terms of overall significance and historical impact on market volatility. On Wednesday, the consumer inflation expectation report is due, and will likely be the most moving event coming out of the antipodean nation for the entire week. With inflationary pressures beginning to climb for Australia, further increases in expectations will likely put upward pressure on the Aussie-Dollar pair amid calls for a boost in the Reserve Bank of Australia’s key interest rate.

United States – There is significant data due out of the world’s largest economy this week, with the most significant event coming on Thursday. However, with multiple other events deemed of at least medium importance, there is sure to be volatility for Dollar-based pairs before the release of growth data on Thursday. Before then, on Tuesday, new home sales data is expected to show a further rebound in the housing market, which would certainly help the U.S. Dollar. Similarly, a rebound by durable goods orders on Wednesday would also boost the prospect of a stronger recovery in the United States.

Data for May 22 to May 27

Data for May 22 to May 27

Date

Australia Economic Data

Date

United States Economic Data

May 25

Consumer Inflation Expectation (MAY)

May 24

New Home Sales (MoM) (APR)

May 25

Construction Work Done (1Q)

May 25

Durable Goods Orders (APR)

May 25

Private Capital Expenditure

May 25

House Price Index (MoM) (MAR)

Written by Christopher Vecchio, DailyFX Research.

To contact the author of this report, please send inquiries to: cvecchio@dailyfx.com

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.

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