Bottom Line 17/01/17
Daily Trend: Up
Weekly Trend: Neutral
Monthly Trend: Neutral
Support Levels: 71.40 / 69.70 / 68.20
Resistance Levels: 75.20 / 78.40 / 80.00
The Aussie dollar has had a solid start to the year having run up strongly from 71.40 this month to 75.20, which is now on the edge of a minor supply zone. The run has been in line with strong Iron Ore prices which have now flown to a new 2 year high, which has come on the back of production cuts being proposed in China due to air pollution issues. Being a risk on currency though, just lately we have seen some minor weakness come into play potentially aligned to geopolitical issues, with Trump recently talking conditional rhetoric in regards to China's 'One China Policy'.
The pound has also taken a beating on lingering Brexit concerns and it is teetering on the edge of a bearish cliff technically. So plenty to keep us interested on the fundamental front in regards to currencies. CPI figures in the UK are coming out today and will either create stability or ruffle some feathers, so keep an eye on this. Not much happening in the States this week pre Trump's inauguration, be it New York's Fed President is scheduled to speak. Lets take a look at the technicals.
Reasons to stay cautious:
→ Inflation remains in check in Australia (yet watching)
→ unemployment data being monitored
→ Further interest rate cuts still possible
→ strong support zone 67.00 – 68.00 continues to hold
→ strong Iron Ore keeping price robust against a strengthening USD
Price patterns to the upside have been impulsive throughout January. Our medium term bullish interpretation of the trend that we were forwarding throughout 2016 admittedly hit a snag later on in the year, yet with 71.40 holding to this point, an intermediate A-B-C move higher still has potential. 71.40 is the line in the sand though so if it is broken below then the bears will be back in control. For now things are on a more neutral footing so could go either way, be it the past few weeks of price action has been positive. If our wave count proves correct, price action should now be traveling higher within an intermediate Wave-C. Wave-A vs Wave-C equality targets 81.60 with any push higher above 78.40 placing this proposed target as high probability.
More immediately though price is at an inflection point at 72.20 with further supply above here in play up to 78.40. Price is also hugging the 200 day moving and is overbought on our divergence indicator. So a healthy breather does look possible right here and if it does trigger then the potential for 73.00 to be revisited is very real, be it there is proven demand at this price point stemming back a solid 18 months. If 71.40 holds, we remain optimistic over the next 3 months or so as a minimum.
'There is a low risk opportunity to trade long here above 72.50 …… ' We decided to hold off though to look for a more conservative entry based on the selling pressures price had been under since November last year. As mentioned in our review tonight, levels are now at an inflection point so this is not the time to start looking to take on long positions. Yet any breather from here that brings out strong buyer support will certainly see us looking for a swing trade opportunity on the long side from lower levels. It's back on our radar.
[Note: The Aussie is trading at 75.50 at the time of publication – Ed]
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