The Aussie has been considered one of the strongest currencies over the past two years. Trending from a low of .6010 established in October of 2010 the currency has moved over 5000 pips to date. Taking a look at our weekly chart we can see how our recent high was established near the psychological 1.1000 high earlier in the week.
The recent decline on the AUD/USD pair began this morning at 4:30am GMT with the RBA (Reserve Bank of Australia) deciding to hold the key cash rate at 4.75%. As we discuss here frequently, money follows yield and a hold in rates has caused demand to temporarily drop for the Aussie.
The RBA stated "In future meetings, the board will continue to assess carefully the evolving outlook for growth and inflation”. This statement is purposefully ambiguous and implies that they are not ruling out future action; however they remain flexible in regards to monetary policy.
Price Action
Moving to an 8Hr chart we can see the AUD/USD heading to support near the 1.0775-1.0800 price handled. Due to the strong trend, traders can use pull backs as entry opportunities near our trend line. If our short term support fails longer term resistance can be found near parity, 1.0000 on our weekly price chart.
Trading Opportunity
My preference is to take advantage of this sell off and use the opportunity to join the trend. If price reaches support we can look to buy near the 1.0775-1.0800 price levels. A bounce off support would signal a resumption of our trend and our sites should be set on 1.1000 or higher. Stops should be set below the previous low at 1.0700 for a clear 1:2 Risk Reward level.
Alternative scenarios include a break of short term support and waiting for price to resume trending near parity.
Walker England contributes to the Instructor Trading Tips articles. To receive more timely notifications on his reports, email instructor@dailyfx.com to be added to the distribution list.
