Saturday, 14 May 2011

AUD/USD weekly and daily

As noted on previous posts showing monthly candlestick charts of the AUD/USD, the market has bounced downward from the trend line joining the previous highs of the decade. This time I am posting the weekly chart, as it shows up another interesting trend line, which joins the 2010 & 2009 highs to the 2007 low. This line likely remains a key inflection point, and a break downwards through it or a bounce upwards from it should lead to a sizeable move. Bearing in mind that we must wait for the market to show its hand, the daily chart provides clues to what might happen if the potential trend line support fails. 

The daily chart suggests shows support from the top of previous trading range may be found above 1.04. A move lower through that level would likely see a test of parity and then the lower trading range line at 0.98. 

EUR/USD moves lower

As a trend trader, if I find a trend on the daily chart, I look for tradeable edges on the hourly chart which will align my trading with the daily trend. The past week's market action on the EUR/USD has illustrated the value of this approach.

The trend on the daily chart is down. At this early stage of the market turning lower, I consider the EUR/USD to be in a down trend on the daily chart so long as it trades below the 40 day moving average. Adding confidence that the recent move lower has legs, is the break below potential support from the November 2010 highs.

Given that the daily trend is down, we look for edges on the hourly chart which provide low risk entries to potential moves lower. One of the clearest and therefore easily applied counter trend patterns is a three wave a-b-c, formed between two parallel trend channel lines. We see two examples in the hourly chart presented here. High odds short entries are taken when the market breaks the lower trend line of each pattern. More aggressive traders could take short positions once they are confident of a move lower from point c in each pattern.    

Emerging downside risk for global equities

Just for fun (!) this morning I decided to look at charts of equity markets from all over the world, to either confirm or deny my sense that the newly emerged down trend in the Aussie market has the wind at its back, in the form of a global turn down.

As you will see, the trend at daily chart level is now down for most markets across the globe. It is too early to call a top, but the downside risks are increasing.

Worryingly, but not surprisingly for this particular Aussie, the weakest looking markets are those in China, India, and Australia itself. "But but but.... I thought our government said a huge Asian driven resource boom was on the way" I hear some say. Me, I'll go with the story that the charts are telling. Risks to the downside are emerging for both the Chinese and Indian markets, and by implication, their economies. That implies a growing external risk for the Australian economy.

Now to the charts. For this exercise I will simply define a down trend as a market trading below the 40 day moving average. For many of the charts you will see, the 18 day moving average has made a bearish cross below the 40, adding confidence that the trend has turned down.

Trend is down for the Aussie ASX 200.  

Trend is down for China (A50 China tracker).

Another Chinese index (H shares - companies incorporated in China, with shares traded in Hong Kong). Trend is also down. The 2010 high has not been breached or even tested in 2011. 
Hong Kong trend is down.
India trend is down, with the market well of its 2010 highs.

Japanese trend is down.

Singapore trend is down.
UK FTSE trend is down, albeit not as weak as the Asian markets.
German trend is up. The strongest market that I have looked at today.
US trend is up, but only by a few points.
South African trend has turned down.

That covers most continents. No idea about South America or Antarctica ;-)