The Aussie Playing Field: How To Trade AUDUSD

Hello Traders,

Here is today’s Forex analysis and FX tips on how to trade the Australian Dollar versus the USD:

Aussie turnaround

The Aussie has had a turnaround quite recently most notably marked by the pinbar candle stick formation at the bottom. Ever since then the Aussie has been going sideways and has not yet managed to continue with the potential bullish reversal.

Yesterday’s candle

Yesterday’s day candle however might be the 1st signal of continuation. The day candle had a substantial body with a close very near the high, which signals decent strength to the upside. Furthermore, it is worth noting that the day candle has also engulfed price action of the previous trading day.

 

Confirmations

Besides the above, the currency has the following confirmations:

a)      The Aussie bounced off the bottom of the sideways range

b)      It has a clear close outside of the downward trend line

c)       The Aussie is making higher highs and higher lows on the 4 hour chart

Warnings

However, it should also be noted that the Aussie has been ranging between the 1.02 and 1.06 levels since summer 2012. The flat 200 ema on the day chart confirms the lack of a trending mode.

Also the breakout out of the down trend on the 4 hour chart is hardly convincing when one sees a doji with a huge wick on the top of the candle.

 

Enough space for upside?

That being said, the main question is: does this move have space to the upside? How to trade the AUDUSD?

Yes it does, but a trader must be careful of the 4 hour exhaustion wick. The currency could retrace a bit before continuing north.

If it does break the top or give a sufficient retracement and turnaround, the Fib targets and Fib retracements nicely line up with each other. The most likely target is -0.618 and 618, where the Aussie shows a nice confluence at around the 1.04 level.

Depending on price action we will have to investigate whether the Aussie has more power and strength to continue its upward march, or whether we get the downward continuation.

Extra support

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The Great British Pound’s Weakness in the Forex Market

The GBPUSD has been quite the sight to see since January.

Falling close to 1500 pips already in 2013, along with horrendous economic figures, many fear the UK has slipped into it’s third recession since the 08' financial crisis.

 

Official data released on Tuesday showed manufacturing production is down 1.5% in the UK from last month. Weak production figures have been a huge component in the economy’s weakness. Recently the Bank of England decided to not add a fresh round of QE, but in result of Tuesday’s economic figures, there are refreshed expectations of further UK quantitative easing in the near future.

“This is the penultimate nail in the coffin in terms of triple-dip – it’s pretty much game over now,” said economist Alan Clarke at Scotiabank (Reuters)

The fact alone that the UK is heading into a third recession is enough to keep investors short on the GBP.

It is also worth noting that U.K. inflation expectations are the highest since September 2008 according to “World First”.

The cause of the evident GBP weakness and the JPY weakness in the Forex Market is not just these currencies weaknesses, it’s also a result of the U.S. Dollar’s strength. Therefore, this week, with about 20 United States economic news events, we could see a lot of continued volatility in the GBPUSD and USDJPY.

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