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    AUDUSD: Volatility analysis

    An article published in Bloomberg focussed on a fund manager's call for AUDUSD to drop to 40c. We saw this as an ideal time to revisit the yearly range analysis we performed in December 2015.  

    View related analysis: 
    AUDUSD to set a new post-float record in 2016

    Using OHLC data we created potential ranges for the HL (high to low) and OC (open to close) ranges of a given time period. For the yearly candles we used 4 years, as this captures the bulk of the move from the bear market, as we feel this will provide a more meaningful average than taking the entire historical data set. 

    The charts below focusses on annual candles (so one candle per year) to average the high to low and open to close ranges separately, then applied these from the 2016 open prices to help asses probably ranges for 2016. We have tested this on prior years and it can help provide potential support and resistance, along with the high-to low ranges. However, whilst the closing price assumption is far less accurate then the HL range, it still provides potential support and resistance levels throughout the year. 

    Interestingly the ATR yearly low stalls around the GFC low, which will no doubt be a closely watched level if the Aussie makes it down to the 60c handle. Such important and closely watched levels rarely ever break upon first attempt, as the temptation to book a profit at key levels remains very high. So whilst we remain bearish for AUDUSD in 2016 we also suspect that it will hold above 60c, which is in line with our original analysis. 

    Switching to the monthly chart we can see how rallies have so far been capped by the 20-month MA. The may close confirmed an evening star reversal candle below the 20MA which raises the potential for a major swing high to have been seen. However, we are also aware that the likelihood of this high holding as resistance will be down to the combination of how hawkish, if at all FED remain in 2016 alongside the potential for RBA to cut further this year. We expect a rate cut in late Q3 or early Q4 which does leave room to challenge the 20 MA around the 88c level in the interim but ultimately, a lower AUDUSD is more likely in our opinions. 

    Moving down to the weekly charts we have overlaid the Q3 ATR ranges. This quarter's low has in fact coincided with the ATR projection low and even respected the bear-close area around 72c as support. We mentioned earlier this tendency has been seen on other examples and that, whilst it can act as support or resistance, is not a good indicator to assume the closing price of a given period. 

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