AUD/USD Technically Topped Out

Last updated 7/29/2010 2:12 PM EST (GMT -5) 25 Comments

FX360 Technical Analyst Staff

Technical Analyst, GFT

After drifting down to .8900 support during yesterday's NA session, the AUD/USD posted a relatively aggressive rally during Asian trading finally topping out near 90.40 prior to today's NA open. This unsuccessful effort to eclipse last week's top near 90.70--just below major daily pattern completion near .9100--suggests a potential shift in longer-term momentum especially considering yesterday's dovish NZD fundamentals which were highlighted in this morning's NZD feature, " Kiwi Lower off RBNZ Statement - End of Commdollar Rally? "

Most notably, GFT's director of currency research, Boris Schlossberg, states, "With both the RBA and the RBNZ now likely to remain stationary well into the fall, as their respective economies absorb the latest round of monetary tightening, the Aussie and the kiwi may begin to underperform the other high beta FX currencies as speculative interest moves elsewhere. Although both commdollars sport relatively high yields, the lack of any further rate hikes for the foreseeable future could cap the upside going forward."

From a technical standpoint, this means the AUD/USD is at a tipping point. The dovish concerns Boris points out suggest the current top just below major bearish geometric pattern completion at .9100 may hold (see daily chart below) meaning more aggressive traders may look to establish a short position near current levels (~.90) , whereas more conservative traders may look to hold off and either wait for a final drive to pattern completion and short the AUD/NZD at .9094, or wait for prices to close below current bull trend line support (see 8hr chart). A relatively conservative target of .8817 sits just above initial 38.2% support of CD, however, extended targets of .8600 and .8450 may come into play.

Potential strategy:  Sell if prices rally to .9094 risking .9178 targeting .8817.

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Comments (25)

Demax

July 29, 2010 at 03:49 PM ET

Definitely on my radar from here in.

Thanks Roger.

NeoFX

July 29, 2010 at 07:56 PM ET

FInally!!!

I've been commenting on this trade (as well as have had my eye on it) for quite a while now. It finally approached our point of .9100 SELL OFF!!!

This should be fun because according to my calculations, LONG TERM this pair is headed towards .7800. But this one is also quite unpredictable relatively speaking to other pairs: If it bounces as I expect and it breaks trendlines then it's headed south for sure but it may even rise up one more time, you never know.

I personally doubt it'll do the latter as that would make it a quadruple top formation and I've never seen any of those yet-----I think the Aussie is done for the rest of the year, as is the GBP/USD and the EUR/USD who I believe are also very close to reversing and going south again.

The USD/CAD is showing huge potential for an up reversal favoring the Dollar, thus confirming the potential for major downtrend reversals in the above pairs.

let's see.....

Semaj

July 29, 2010 at 09:45 PM ET

It would be great if the technical setups were sided with the fundimentals more often :)

NeoFX

July 29, 2010 at 11:19 PM ET

well they certainly do in a way or we technicians would sit on the sidelines:

the reason the technical side works is because of fundamentals occurring the way and in the time they do....what happens in economics is what moves the market mainly and what ultimately depicts the stories in our charts......TRULY MAGICAL if you ask me!!

Victor

July 29, 2010 at 11:44 PM ET

Roger: There are some arithmetic considerations in favor of your theory that this week's 9068 may indeed be a "D" completion point for the summer price action; for which I would request your comment:

(1) The width of the entire range (from the 9387 top to the 8065 low) is 1322 pips.

(2) There are 3 wick bottoms at the "A" lows. From there:

(3) This week's top @ .9068 was the 76.3% retracement of the entire 1322 pip range.

(4) Now here is the kicker: I saw the same "BC" double botton lows @ 8315 as everybody else, (the ones that formed on June 30 and July 5, respectively). However, I was unable to relate these reversal points to any other turning points until this week's 9068 high. Apparently, the third (June 7) wick low in the "A" zone, unto "B" @ (which you have denominated "A" of the most recent Gartley trend), bears a 76.3 % relationship to the BC double bottoms @ 8315.

Therefore, it appears that we have two .763 relationships; one at an intermediate term double bottom, and the other at this week's top.

Considerations of symmetry would seem to call for a retest, no? Then, down she goes.

So, the question I have, besides, "What do you think of all this?" is: Assuming then, that this is simply a major bearish correction pattern, doesn't that imply that the trend should fall far, far BELOW the "A" lows? If this analysis is correct at all, isn't this a great place to sell and hold to about .7753?

There is a fractal analogy to that argument visible in the price action between November 15, 2009 and February 4, 2010.

Victor

rstojsic

August 02, 2010 at 10:53 AM ET

hi victor, although i'm not familiar with 76.3% vs. 78.6%, there of course is a chance prices could continue lower past point A in the weeks/months to come. if point A is indeed broken, then I would look to the CD/AD extension as potential targets.

NeoFX

July 30, 2010 at 01:29 AM ET

that's correct my friend: read my comment above, I predicted .7800 would be a decent by back point just to be safe. THis happens to be the 50% ret on the monthly chart and the 127% D ext of this seemingly down ABCD that's completing now.

That would bring perfect symmetry because if we sell now at .9100, or the 78.6% fib level, and exit at the convergeance between D ext and the 50% ret on monthly level, then that'd give us exactly 1300 pips-------in other words: AB (down) will equal CD (down of course).

in my book this trade could turn out to be easily the trade of the year!!

good luck...

FXDragon

July 30, 2010 at 05:14 AM ET

I just happen to have good memory! and remember vividly back many months ago when Roger said "I do not follow fundamentals what so ever!" Will put a picture of him next to hypocrisy in the fx dictionary:)
Anyhow any new dollar long positions except for usdjpy will pay you 100s of pips as eurusd slides back to 1.20 like a kid on a seesaw in autumn.
Also stay away from gold for a while.

rstojsic

August 02, 2010 at 10:54 AM ET

i dont follow the fundamentals. That's boris/kathy's job.

NeoFX

July 30, 2010 at 09:47 AM ET

I don't see why you say that's hypocrit. I don't follow fundamentals either.

Surely it's nice once in a while whe some bad news corresponds with your expected sell off formation of any given currency, but I strictly trade off of what the charts say and not the news.

Even if you followed the news and based your decisions off of that, you'd still have to analyze the charts to see when and where to ge in.

there has to alwys be a point of reference other than simply fundamentals: Charts!!

rstojsic

August 02, 2010 at 10:55 AM ET

agreed

Th10sworks

July 30, 2010 at 10:37 AM ET

Roger

This is a brilliant call -

I have seen a setup on another pair - could I email you and could I get your take on it.

Thanks

rstojsic

August 02, 2010 at 10:56 AM ET

sure...rstojsic@gftforex.com...you can also post a link here of the chart :) (link to online photo album like snapfish, etc.)

MHW

July 30, 2010 at 12:23 PM ET

The Aussie will reach parity to the buck within nine months.

All of the talk about AUD/USD falling below 80 cents is ancient history.
The time for the Aussie to fall below .80 was two months ago when the
Aussie was crashing 150 pips a day. Since its crash low of .8066 on
5-25-10, all that the Aussie has done is build a launching pad that
will move it to a fundamentally well-earned $1 relationship to the buck.

Global equity markets are starting to break out to the upside again.
Technically, the Aussie has moved above its 200 EMA and SMA lines over
the past several sessions. Fundamentally, the Australian economy has
long been healthier than the U.S. economy.

The true nature of speculation is to look ahead, not back. Aussie
prices of the past will have very little bearing on future Aussie
prices once a meaningful new trend is established. The current
evidence on the Aussie is that a meaningful new trend has been
established: Up.

Gentlemen, I kindly suggest that you lay your slide rules down.

FXTrillionaire

July 30, 2010 at 03:31 PM ET

"The true nature of speculation is to look ahead, not back. Aussie
prices of the past will have very little bearing on future Aussie
prices"

Are you aware of how a moving average is calculated? If the above statement is true, then your arguments about MA crosses are meaningless right?

Victor

July 30, 2010 at 06:54 PM ET

MHW:

OK: Look. This is not that kind of bar. This is a technical club.

Seriously, I appreciate your argument, but consider this: The relative strength of a nation's currency is a reflection of the relative strength of its economic prospects going forward. As you just said: " The true nature of speculation is to look ahead, not back. Now, the strength of the Australian economy in absolute terms, is coefficient to Chinese demand for Australian materials to fuel its economic expansion. What happens to that demand when the Chinese expansion moderates from over 10% per annum to something sustainable? Australia's best customer decreases its demand, and the Australian dollar falls. So, it's not actually in the bag, is it?

Victor

MHW

July 31, 2010 at 10:15 PM ET

FXT: Wrong. You forgot the "once a meaningful new trend is established" part.

MHW

July 31, 2010 at 10:26 PM ET

Victor: As long as China outgrows the U.S., I'm not worried about going long the Aussie.

FXDragon

August 01, 2010 at 06:02 PM ET

The important question is 'when': When would you buy, now? Or when it crashes again. I think if you go now its too late. If you took profits now, great.

rstojsic

August 02, 2010 at 10:57 AM ET

that may be the case, but even if the aussie does rally over the next 9 months as you suggest, we will of course see some pullbacks along the way. this may be one of those pullbacks, for example.

MHW

August 02, 2010 at 11:03 AM ET

Roger, I know it will pull back soon, but I doubt to .8817.

xinyang

August 03, 2010 at 12:07 AM ET

Hi, everyone, new here and also new to forex.

Just share some of my opinions here. I am in line with the majority club members here to look down Aussie.

i just found an interesting pattern: starting from last year October AUD trading at the ~0.90 range till now for 10 months time. From the weekly chart i cannot see consecutive 3 WHITE candlesticks. However, previous 2 week plus this week gave us a 3 consecutive white candlesticks temporarily. I guess the following days will eat up the white candle for this week and eventually turn back to a black one, and the observation continue to hold.

hope can make more friends here and learn more from FX360. Wish everyone good luck.

By the way, i already short sold AUD/USD at 0.9110. Wait and see...

TGM

August 03, 2010 at 06:10 PM ET

Hi Roger,

I hope this message finds you well. I am in this trade and have been since its inception & have been watching it go up & down like a yo yo with all the news of the RBA keeping rates on hold & the results from the US & the comments from Bernanke. Would you recommend to continue with this trade to see if the price drops into profit or should I close out & take my losses?

Thanks & Regards
Matt

rstojsic

August 04, 2010 at 07:34 AM ET

Hi Matt, where's your stop?

TGM

August 04, 2010 at 06:11 PM ET

Hi Roger,

I had the trade Sell @ 0.9094, Stop @ 0.9178, Limit @ 0.8817. It's ok now as too much good news came out of Australia for the AUD to fall. Never mind just one of those things I guess. I very much look forward to yours & Brad's trade recommendations as I am no where near good enough to do it on my own. Keep up the good work guys. You have my vote.


Regards

Matt

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