When the Australian dollar stumbles, it often stumbles badly. This makes the AUD/USD a difficult trading situation because when a collapse occurs, the AUD tumbles quickly.
Investors hoping for a rebound of the Aussie to beyond the $0.90 level may be disappointed. Chart analysis shows this is unlikely to happen for awhile.
The dominant feature on the AUD/Dollar weekly chart is the substantial and reliable resistance near $0.94. This has capped every attempt at the parity party for since late 2007. The pop to $0.98 gave a brief bit of excitement but it was a temporary feature. Resistance near $0.94 is strong. Support on the lower edge of the trading band near $0.885 is not as reliable. The width of the trading band is measured and the projected downside target is near $0.83. This does not give a reliable support target in this instance as historical support is lower near $0.81.
The Guppy Multiple Moving Average indicator shows trend weakness began to develop in December 2009. The current trend collapse was signaled with a GMMA compression and crossover early in May. The long term group of GMMA averages is well separated and this reduces the probability a rebound from support will develop successfully into a new trend.
The longer term upside target is near $0.885 but there is well established historical support/ resistance near $0.87. Short term rebounds provide tradable volatility but there remains a good probability of a retreat and retest at levels below $0.84.
The GMMA shows a significant change in trend pressure rather than just a temporary decline. This time it will take more than an Australian reserve bank rise in interest rates to put life back into the long side trade in the AUD/US dollar.
Daryl Guppy is a trader and author of Trend Trading, The 36 Strategies of the Chinese for Financial Traders –www.guppytraders.com. He is a regular guest on CNBC's Asia Squawk Box. He is a speaker at trading conferences in China, Asia, Australia and Europe.
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