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Short-term trading ideas FX AUD/USD - a lowering game: retreat from the upper boundary of the A-A channel

Trading opportunities on the currency pair: On the weekly chart, a doji and a bearish signal have formed on the Stochastic oscillator. On the daily chart, a double top has formed. Moreover, there is a bearish divergence on the AO and CCI indicators. In this idea, I'm envisaging a fall in the rate to the trend line at 0.7480 by the 27-29th of March 2017. If this fall gathers pace and the rate closes below the trend line, then we might see a slide to 0.7262. It would be prudent to rule out such a fall if the daily candle closes above 0.7790.

Background:

The previous idea on the Aussie dollar was published on the 26th of December 2016. At the time of publication, the AUD was being quoted at 0.7171 USD (minimum candle: 0.7160). The target stayed at around 0.7054 up to the 3rd of February 2017.

Upon reaching the intermediate target of 0.7145 before the new year in a thin market, I allowed for a restoration of the Aussie dollar by 100-150 pips. The strengthening of the Australian dollar was amplified after a rebound of 195 pips and a breaking through of the trend line (0.7368). The AUD/USD rate grew to 1.0582 (its highest since 10/04/2013).

Current situation:

According to the latest COT (Commitments of Traders) report for the 21st of February published by the CFTC (Commodity Futures Trading Commission), large speculators have increased their long positions on the Aussie dollar. Small speculators increased their short positions.

Large speculators (non-commercial): long positions have increased by 9126 contracts to 86,060, and short positions have fallen by 19 to 54,834. Net long positions have risen by 9,145 contracts to 31,226.

Small speculators (non-reportable positions) have increased long positions by 21 contracts to 31,936. Short positions have increased by 241 contracts to 24,358. Net long positions have fallen by 220 contracts to 7,578.

Hedgers (commercial) have reduced their long positions by 859 contracts to 28,663. Short positions have risen by 6,562 contracts to 58,513. Open interest has grown by 13,692 contracts to 148,821.

From the COT report it's plain to see that buyers are increasing their long positions on the Aussie dollar following the breaking through of the trend line. Buyers met with some resistance at the 0.7735 level. At the end of the daily chart we can see that a reversal formation with a bearish divergence has formed.

Weekly timeframe

On the weekly chart, a doji has formed on the upper boundary of the A-A channel. Its body is formed at the bottom of the candle. The fast line of the Stochastic indicator has intersected the slow line from top to bottom; a bearish signal. The risk of a downwards movement towards the trend line - which was broken through on the 2nd of February - has increased. See the daily chart below for my predictions.

Daily timeframe

On the weekly chart, a doji and a bearish signal have formed on the Stochastic indicator. On the daily chart, a touble top has formed at the 0.7740 mark as well as a bearish divergence on the AO, CCI and Stochastic indicators.

Given that large speculators are increasing their long positions on the Aussie dollar, I can see the exchange rate falling at least as far as the trend line at 0.7480 by the 27-29th of March 2017. If this fall gathers pace and trading on the day closes below the trend line, then it could fall even further to 0.7262. On the way to 0.7480/90, buyers could meet with two intermediate resistance levels: 0.7655 and 0.7590. It's worth considering that this fall may not occur if the daily candle closes above 0.7790.

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