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Recent Aussie Trades Revisited!
By Mike Conlon | October 28, 2009
Its blatantly obvious that today’s market theme has been about risk-aversion and flight to “safety”, but I just wanted to take a closer look at the Aussie. In my last post I mentioned all of the reasons why the Aussie should be consider the “safe” currency, yet it is getting clobbered today as the stock market sell-off is relatively benign (as of this time of writing).
One of the reason’s (outside of the technicals- which I’ll get to in a minute as I DID promise you charts today) for such weakness today is the inflation reading which came in last evening. While inflation did check in higher than expected, the increase was not enough to warrant a 50 basis point (bp) rise in rates, so now the expectation is for “only” 25 bp when the RBA meets next week.
Considering the interest currently being offered in other parts of the world, this is STILL pretty good for savers seeking higher yields.
So let’s look at the updated charts for 2 short-term trades I called out last week, long GBP/AUD and short AUD/USD. While the trades were intended to be short-term in nature (the AUD/USD being a day-trade), I probably would have held a little longer had the stock market responded a little more negatively.
So here’s GBP/AUD (click chart to enlarge):
Last week I called a possible reversal on this trade when the trend was clearly down on the daily charts, then mentioned a cup & handle formation on the 4-hour chart. When I saw the bullish pattern on the shorter time-frame, I reduced my holding period for the trade and was able to take some profits before being stopped out.
Based on today’s action, tightening my stop was clearly a mistake. And while you’re never going to go broke taking profits, missing the big moves can sometimes be as equally painful as losing. Looking at this chart, the first fibonacci level at 38.2% is just above 1.84, and I called my original target at 1.835. So those would be the first two levels I would look to take profits on.
The second chart I want to look at is the short on AUD/USD (click chart to enlarge)
I’ve been in two short trades of this pair in the last two days, each for different reasons, and you’d think that I would have put 2 and 2 together! Part of the reason why I was reluctant to sit in this pair was because of the CPI number coming out last night. Dumb. Should have just stayed in from the beginning and kept my buy stop just above the .93 level, which looked like an obvious place of resistance (and my initial stop on the first trade).
Since putting this chart together, this pair has in fact traded below .90 (currently at .898), so I expect this pair to pull back to about .8875 at that first Fib retracement level.
This also goes hand-in-hand with the idea that the stock market and commodities market are due for a pull-back. I will be watching these levels very closely, for if they hold and bounce higher, then it could be a good short-term buying opportunity for stocks. If the Aussie continues lower, then it could be goodnight Irene for stocks and commodities.
The S&P 500 index is trading around 1050, which is medium-term support. If that level holds, then risk-taking may resume again and look for the Aussie to rise.
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