AUD/USD: Have we seen a long-term bottom near .7000?
Matt Weller, CFA, CMT March 21, 2016 6:25 PM
With markets essentially trapped in near-term stasis as traders wait for higher impact data, it’s a good time to take a step back and look at the longer-term technical picture on AUD/USD. For more than a year, from mid-2014 to mid-2015, the Aussie consistently lost value against the greenback, dropping more than 2,500 pips in the process.
Over the last half of 2015 though, something interesting happened: AUD/USD stopped going down. It might sound like a bit of a meaningless tautology, but for a downtrend to end, the market must first stop falling (or as my grandpa used to say, "if you find yourself in a hole, the first thing to do is to stop digging"). Long-term trends in the currency market are driven by massive, slow moving institutions like central banks, national governments, and international businesses, and as a result, they rarely reverse on a dime.
Nonethless, as AUD/USD consolidated in its .6900-.7400 range for upwards of six months, there were signs that the established downtrend was losing strength. As the weekly chart below shows, both the MACD and RSI indicators formed prolonged divergences with the AUD/USD exchange rate, showing waning selling pressure over H2 2015 and Q1 2016. Then, earlier this month, AUD/USD finally broke above the top of its range at .7400 and rates have already gone on to hit a high near .7700 as of Friday’s peak.
Of course, it would be premature to automatically assume that the pair will necessarily reverse the entire drop and trade back near .9500 any time soon, but as long as rates hold above .7400, there’s definitely a case for continued near-term momentum. To the topside, the next major levels to watch will be the Fibonacci retracements of the 2014-2016 drop at .7850 (38.2%) and .8165 (50%), as well as key psychological resistance at .8000. Only a break back below previous-resistance-turned-support at .7400 would shift the medium-term bias back to neutral.
Disclaimer: The information on this web site is not targeted at the general public of any particular country. It is not intended for distribution to residents in any country where such distribution or use would contravene any local law or regulatory requirement. The information and opinions in this report are for general information use only and are not intended as an offer or solicitation with respect to the purchase or sale of any currency or CFD contract. All opinions and information contained in this report are subject to change without notice. This report has been prepared without regard to the specific investment objectives, financial situation and needs of any particular recipient. Any references to historical price movements or levels is informational based on our analysis and we do not represent or warranty that any such movements or levels are likely to reoccur in the future. While the information contained herein was obtained from sources believed to be reliable, author does not guarantee its accuracy or completeness, nor does author assume any liability for any direct, indirect or consequential loss that may result from the reliance by any person upon any such information or opinions.
Futures, Options on Futures, Foreign Exchange and other leveraged products involves significant risk of loss and is not suitable for all investors. Losses can exceed your deposits. Increasing leverage increases risk. Spot Gold and Silver contracts are not subject to regulation under the U.S. Commodity Exchange Act. Contracts for Difference (CFDs) are not available for US residents. Before deciding to trade forex and commodity futures, you should carefully consider your financial objectives, level of experience and risk appetite. Any opinions, news, research, analyses, prices or other information contained herein is intended as general information about the subject matter covered and is provided with the understanding that we do not provide any investment, legal, or tax advice. You should consult with appropriate counsel or other advisors on all investment, legal, or tax matters. References to Forex.com or GAIN Capital refer to GAIN Capital Holdings Inc. and its subsidiaries. Please read Characteristics and Risks of Standardized Options.