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Short-term trading idea FX AUD/USD - bear speculation: return to 0.7345

Trading opportunities on the currency pair: the price is currently trading in the middle of the range formed since April 2016. Large and small speculators alike are unsure what to do with the Aussie currency. Problems in China and a drop in raw assets prices have put pressure on the economy and the RBA remains in favour of reducing interest rates this year. Because of this, my first (and base) scenario has the price rising to 0.7605/10 followed by a return to the trend line at 0.7345.

Background

The previous idea on the Aussie dollar came out on the 10th of April. At the time of writing, the Australian dollar was trading for 0.7501 USD. I started looking at the idea of a weakening Aussie dollar on the 27th of February this year. I had been expecting the AUD/USD rate to fall to 0.7272 by 08/05/17. On the 9th of May, the rate fell to 0.7329. The price rebounded from the upper boundary of the A-A channel after the formation of a double top. The price fell short of its target by 57 pips. As the US dollar fell across the market, our pair restored to 0.7566.

Current situation

The Aussie dollar has surged by 85 pips to 0.7528 in the last week. This growth was facilitated by the RBA's meeting, Australia's GDP data for Q1, risk avoidance due to the British election and the ECB's meeting.

At the RBA's monetary policy meeting on the 6th of June, the decision was taken to maintain the key rate at its current level of 1.50%. GDP for the first quarter rose by 0.3% QoQ and 1.7% YoY (exceeding expectations).

On Friday, the AUD/USD rate closed down. The pair's drop was brought about by the dollar's rise following the UK parliamentary election. Theresa May failed to secure an absolute majority in Parliament.

Weekly chart

The AUD/USD pair closed last week up. The price bounced from 61.8%. Right now, all the conditions are there for a rise in quotes to the upper boundary of the A-A channel at 0.7717. Now, the price is trading in the middle of the range formed since April 2016. In my first (and base) scenario, I'm expecting the rate to rise up to 0.7605/10 and subsequently return to the trend line at 0.7345. There is a reason for this. The problems in China as well as the drop in prices of raw materials are putting pressure on the Australian economy and the RBA is still in favour of lowering interest rates this year.

In the latest COT (Commitments of Traders) report on the 6th of June, published by the CFTC (Commodity and Futures Trading Commission) on Friday, large speculators have reduced their long and short positions on the Aussie.

Large speculators (Non-commercial): long positions have fallen by 4,413 to 37,171 contracts, short positions have fallen by 983 to 40,212 contracts. The net change in short positions is -3,041 contracts.

Small speculators (Non-reportable positions) have reduced their long positions by 543 to 21,631 contracts and short positions by 2,958 to 30,381 contracts. Net long positions have fallen by 2,416 to 8,750 contracts.

Hedgers (commercial) have increased their long positions by 5,227 to 79,323 contracts and short positions by 4,212 to 67,532 contracts. Open interest has grown by 4,952 to 151,650 contracts.

Large speculators have roughly as many open long positions as short ones. Small speculators also seem unsure what to do with the Aussie dollar. Because of this, I've laid out three scenarios on the chart. The second scenario is a breakout of the trend line. The third scenario involves the breakout upwards from a narrowing triangle.

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