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Short-term Trading Idea FX AUD/USD – Wait and See: Probable False Break in the Trend Line

Trading opportunities for currency pair: taking Friday’s close price of the euro/dollar and pound/dollar into account, it’s highly likely the Australian underwent a false break in the trend line. The Chinese economy is weak and so the price of iron ore has been falling for over a year now. If the Aussie closes below 0.7190 on Monday or Tuesday, it means we will head back to 0.7020. Otherwise the AUD/USD will take the rate to 0.7420/36. This idea will become invalid if the daily candle closes above 0.7296.

Current situation

At the beginning of November the AUD/USD was down to 0.7022 after the Non-Farm Payrolls came out. Due to weak economic data coming out of China and expectations that the US Fed will put up rates in December, a break in 0.6987 can be expected.

The pair was consolidating at 0.7030 for three days and broke from the support due to a closure of long positions on the dollar throughout the market. Last Friday the AUD/USD rate reached 0.7249. By the end of the day, the trend line had been broken.

What’s of interest at the moment?

The technical conditions for the Aussie to strengthen are there but the fundamental ones aren’t. The Australian dollar is heavily dependent on iron ore prices and the Chinese economy. The metal’s price has been falling since February 2013. Iron ore futures for 62% purity ore dropped to a two-year minimum and closed around $46.91 on Friday.

Furthermore, the pound/dollar and euro/dollar closed down on Friday. The Aussie received support from the EUR/AUD and GBP/AUD (and other crosses saw the Australian dollar being purchased too).

Straight pairs with the dollar closed mixed. Now we need to keep an eye on whether the AUDUSD will return to below the trend line. If the Aussie closes below 0.7190 on Monday or Tuesday, it means a false break will have occurred and we will be heading back to 0.7020. If the EUR/USD and GBP/USD flip downside up, the risks of a rise to 0.7436 will spurt up.

Thursday is Thanksgiving in the US. It’s celebrated on the fourth Thursday of November. The stock markets will be closed and from this day the holiday season will start, with Christmas to New Year to follow. Friday is a shortened day: the markets will be working until 20:00 EET.

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