The upper edge of the trading band near $0.775 was established in April 2016. The lower edge of the trading band near $0.715 was first tested in June 2016. The trend behavior since that month has been weak, with the Australian dollar essentially moving sideways.
In November 2016 the Australian dollar retreated strongly from resistance near $0.775 and by December 2016 was testing the support level near $0.715. The rebound rally from this level confirmed the strength of the trading band.
The sharp fall from $0.775 to $0.715 and the sharp rallies from $0.715 to $0.775 offered good trading opportunities, but they do not indicate strong trend changes.
We use Guppy Multiple Moving Averages indicator analysis to identify trend strength and trend changes. In these situations it is a powerful analysis tool, but the GMMA is not the best indicator to apply to understand a sideways market. The GMMA relationships simply show that investors are not strongly bearish or bullish on the Australian dollar. This is shown by the narrow separation in the long term GMMA and its horizontal behavior.
This non-trending environment shows no signals of trend change and GMMA analysis is not a useful strategic analysis tool. However, trend-line and trade-band analysis allows the trader to identify the significant trend break points and establish targets.
The Australian dollar weekly chart has a well-defined resistance level near $0.775. The $0.77 to $0.775 resistance level has been tested eight times in the past 12 months. This level is again acting as a successful resistance level with the Australian dollar developing a retreat to $0.75. A breakout above this level can move rapidly to the next resistance feature.
A second resistance feature on the chart is the upsloping trend line starting from the low of $0.68 in January 2016. The second anchor point is the low of $0.715 in June 2016. The uptrend line acts as a future resistance feature. The line is projected forward and gives a current value near $0.80. This is also near an historical resistance level, so this acts as a double resistance feature. This combination of features indicates a limited upside for the Australian dollar.
The strength of resistance near $0.775 suggests there is a low probability an upside breakout, so traders look for a continuation of the sideways trading band.
A fall below minor support near $0.75 has trading band support near $0.715.
This is not a trending market, so traders apply short term trading methods to capture the rally and retreat behavior. We use the ANTSSYS trade and analysis method to identify the opportunities as the retreat rebound develops.
Daryl Guppy is a trader and author of Trend Trading, The 36 Strategies of the Chinese for Financial Traders, which can be found at www.guppytraders.com. He is a regular guest on CNBC Asia Squawk Box. He is a speaker at trading conferences in China, Asia, Australia and Europe. He is a special consultant to AxiCorp.
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