I last wrote about the Australian dollar during its worst slide since the financial crisis. At the time, I claimed that the slide was probably good for a short-term bounce, but the currency could easily go even lower given macroeconomic concerns. Since then, the Australian dollar has firmed up nicely and formed a potential “W-bottom” pattern against the U.S. dollar. On Monday, it even broke out above that pattern. (See chart below)
These moves are definitely positive developments, but resistance looms overhead with a declining 50-day moving average (DMA) and a flattening 200DMA. A back and forth battle is sure to unfold as the Aussie dollar bounces between support and resistance. Depending on your style, this action will provide either many short-term trading opportunities and/or a chance to slowly but steadily accumulate a position. My many reasons for preferring the Aussie dollar to the U.S. dollar remain intact (higher interest rates, more robust financial system, stronger economy, etc…), so I am inclined to accumulate a larger bullish position. A break of the W-bottom would likely stop me out of short-term positions (in forex trading) but also set up an opportunity to finally grow my core position in the ETF for the Australian dollar, FXA. For now, I am assuming this W-bottom will hold absent materially poor macroeconomic news, particularly out of China.
The chart below summarizes the current set-up with a focus on the W-bottom. The moving averages are in blue and red lines. Click image for a larger view.
Source: dailyfx.com charts (click for a larger view)
Hopefully, the Australian dollar fares better than the Australian national soccer team – “The Socceroos” – did against Germany in the World Cup this weekend. An ugly 4-0 loss…a blow-out, a take-down, and sheer exhaustion and frustration…as summarized by the pics below:
Source: Zimbio
Be careful out there!
Full disclosure: long FXA, AUD/USD