Saturday, 28 May 2011

AUD/USD has options

I'll lay out the options that the AUD/USD has in the coming period, then get to the charts.

I think that if the AUD/USD breaks this week's low at 1.0441, it has the potential to trend down for months and possibly years. Unless/until that low is taken out, we must respect the market's option to move broadly sideways, or perhaps test the early May high just above 1.10. If that May high is beaten, the AUD/USD will likely trend up in subsequent months.

I'll first show the monthly candlestick chart, then the weekly, then the daily. The monthly and weekly charts are clearly warning of an impending trend reversal from up to down. The daily chart was showing a down trend prior to the bounce that began mid-week, but is no longer showing any clear trend.

The monthly chart shows that the market is testing the trend line formed from the peaks made earlier in the century. There is a clear momentum (RSI) divergence going in to this latest trend line touch, a classic warning of impending trend reversal. 

The weekly chart shows that the market this week tested from above the trend line formed from the low in 2007 and the highs 2009 and 2010. A move below that trend line would complete a throw over and indicate likely trend reversal (from up to down). 

The daily chart shows no clear trend, and in my view offers no trading edge at this time. However it does reinforce the view that this weeks's low was significant, as it constituted a test of the top of the previous trading range. By implication, a break of this week's low would also be significant, offering an initial target of 0.98, at the bottom of the previous trading range.