Technicals | Oct 19 2016
Bottom Line 18/10/16
Daily Trend: Up
Weekly Trend: Up
Monthly Trend: Up
Support Levels: 75.00 / 74.00 / 72.80 / 71.40
Resistance Levels: 77.10 / 77.60 / 78.40 / 80.00
Technical Discussion
Well here we are again with the Australian dollar acting very robust and potentially looking to finally trigger the bullish patterns we have been monitoring for quite sometime. In our view it now looks more ready than it ever has been, and whichever it goes, we should be granted an answer on medium term direction within the coming days. Last night price was holding it's own against the U.S dollar as it continued to trade within our 'no mans land' range, yet over the past week it has hit a 4 year high against the British Pound and a 16 month high against the Euro, backed by recent good trade figures and a contraction in our current account deficit. And then there is Iron Ore which for the moment is continuing to trade strongly and is also helping the AUD flex some muscle against the other majors. In contrast to a lot of the negative fundamental rhetoric out there at the moment, we continue to see the potential for a breakout higher here, and a substantial one at that !
Reasons to stay neutral (bullish above 77.10):
→ Inflation remains in check in Australia (deflation a concern)
→ unemployment data being monitored
→ Further interest rate cuts still possible
→ support zone 67.00 – 68.00 continues to hold
Take a look at our chart tonight. Simply put, price is congesting right up into the apex of the standout pattern where a decision is about to be made. Naturally enough it could go either way, yet the high probability outcome we are looking for is for price to breakout higher with the trigger for this to occur being above 77.10. The breakout also aligns two distinct patterns that we have been tracking for a number of months. Firstly we have the larger complex reverse head and shoulders pattern which targets 88.00. Then we have the symmetrical triangle that has been evolving away since April. The criteria that requires fulfilling for triangle patterns is for five internal swings to form and as you can see, we now have these in place via the chart labeling (a)-(b)-(c)-(d)-(e).
The breakout is above the aforementioned wave-(d) high at 77.10 and the target for such a move comes in at 84.10. Then we have the anticipation of an A-B-C move higher off the major 68.20 lows that locked into place back in January 2016, with the equality move for this targeting 85.20. So as you can see, a move above 77.10, which is what we are anticipating, is looking looking down the barrel at some pretty solid upside targets over the coming months. Yet we need the patterns to trigger first. Adding a positive feel to our bullish outlook is the fact that price since the beginning of June has remained above the 200 day moving average, support circa 74.00 continues to hold strong, our daily divergence indicator is only just starting to make its way back up off an oversold position, and there is no divergence to worry about on the weeklies. Nothing is a given until 77.10 can be broken above, yet we like what appears to be simmering away !
Trading Strategy
Our trade on the long side at 72.70 was recently stopped out at 74.80. Always nice to bank a profit yet the interesting thing is that post being stopped out, the underlying strength we've been monitoring for some time has remained rather than deteriorated. As such we recommended another trade at 76.50 with stops below 75.00, and this has recently triggered. So once again we are long the Australian Dollar. It has to be noted though that we have taken an early entry here with the official pattern breakout not coming until 77.10 is broken above. As we are already on board we wont make a formal recommendation on the latter trade, yet if you would like a conservative option, then above 77.10 is your trigger. Lets see if we can finally get the official technical breakout we've been looking for.
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