I am a big believer in using intermarket correlations, cross rate analysis and confluence of technical indicators to form my bias, trades and position size in the FX market, which brings me to this short note on the AUD/USD.
The AUD/USD is being weight down by several technical indicators. First of all, as noted last week, all commodity currencies have shown some divergence from major indices and rejected from some key levels (minus the CAD…yet).
What is now weighing on the AUD/USD is two other major developments today:
- The testing of a daily trend line
- The “Evening Star” formation on the weekly chart (as pointed out by @piptrain so aptly last night)
Let’s take a look:
First of all, you can see in this chart the daily “triangle” that confines the price action of the AUD/USD between the 1.0600 and .9700 levels. As noted by the dark blue up sloping daily trend line we are now probing below it. In addition to this, the daily 38% retracement (July25th-Aug 8th move) is at 1.0450 that we are currently trading below. A close below this trend line and key Fibonacci level would be required for a continuation into next week.
But take a look at this weekly chart. The “evening star” formation on the weekly could indeed suggest that we have much lower levels in store for the coming weeks.
Considering the fact that the AUD is strongly correlated to other asset classes and “risk appetite” in general, you may want to take this into consideration with equities probing the upper end of its longer term range and in some cases, marginal new highs.
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Disclaimer: I am short the AUD/USD, AUD/JPY and long the EUR/AUD and GBP/AUD and plan to stay in these positions for the foreseeable future.