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The Australian dollar has slipped from a peak of $0.81 to a low of $0.79 before developing an uncertain rebound.
Can the Australian dollar find genuine support near $0.71 or is Australian dollar weakness going to continue to develop? This is the first question traders are asking.
Alternatively, is the underlying uptrend strength solid enough to develop a sustainable rebound and breakout above resistance near $0.81? This is the second question, usually asked by investors with a longer-term view of the market.
It is difficult to ignore the performance of the dollar, as Aussie strength is often a direct consequence of weakness in the U.S. currency, which had fallen recently to $0.91 on the dollar index chart.
The mild dollar recovery to $0.93 has coincided with the weakness in the Australian dollar.
Although the Australian dollar may be driven by the strength of the dollar, it is the behavior of the Aussie that sets the breakout targets.
The Kospi trend remains astounding, and despite the pullback, the trend strength remains intact. This remains an exceptionally strong trend and traders and investors were alert for consolidation and retracement behavior.
The Kospi is analyzed using trade band analysis. The width of the prolonged sideways trading band is measured and this value is projected upwards to give the breakout targets.
The most optimistic chart-based targets have been achieved with the index above 2230 and 2400. The same trade band projection methods can be applied to set the next upside target. This sets a target near 2560. This is a very optimistic target and despite the trend strength, its unlikely this target will be achieved quickly.
The Shanghai Composite index breakout has continued to pause as it develops a bullish consolidation.
The consolidation comes as the index has successfully tested and retested a support level near 3,360. The momentum of the uptrend has reduced, but it has not failed.
The consolidation remain bullish because the short-term Guppy Multiple Moving Average indicator remains well separated. The upper edge of the short term GMMA is above the resistance level near 3,360 and the lower edge of the short term GMMA is near to the 3,360 level.
There are three other bullish features that continue to suggest this uptrend will continue.
The first feature is the steady degree of wide separation in the long-term GMMA. This shows investors are also very confident about the future of the trend.
The second feature is the way the upper edge of the long-term GMMA has moved well above the resistance level near 3,290. The degree of separation in the long-term GMMA also remains steady.
The Australian dollar breakout stalled near $0.80. In the longer term, the width of the trading band can be projected upwards to set a target near $0.835. The current consolidation behavior suggests that $0.835 remains a valid target.
There is no question that the Aussie strength is a direct consequence of weakness in the US dollar, which has plunged below $0.93 on the dollar index chart. Although the strength of the AUD may be driven by the weakness of the USD, it's the behavior of the AUD that sets the breakout targets.
The long-term trading band is the most significant feature on the AUD chart. The upper edge of the trading band near $0.775 was established in 2016 April. The lower edge of the trading band near $0.715 was first tested in 2016 June.
The breakout above $0.775 in July was significant because it was the first strong move in 18 months. A breakout above that level can move rapidly to the next resistance feature, but after the initial rally, the breakout has slowed. That suggests a more sustainable and stronger uptrend behavior.
The width of the trading band is projected upward to set a target near $0.835. That is a very reliable price projection method when applied to equity and commodity markets. In FX markets this target calculation is treated with some caution and used as a guide only.
We use Guppy Multiple Moving Averages indicator analysis to identify trend strength and trend changes. In these situations it is a powerful analysis tool.
Trend confirmation comes when the short term GMMA moves above the upper edge of the trading band. That has developed, and it is key confirmation the AUD has moved into a trend, so we can apply longer-term trading methods to capture that behavior.
We use the ANTSSYS trade and analysis method to identify the opportunities as the trend develops. A sustained break above $0.80 is a signal for trend continuation toward $0.835.
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.
The dollar has reached the long-term support level near 0.93 identified on the U.S. dollar index chart several weeks ago. That is a critical support level. Below this support level lies the abyss with the next solid support near 0.83.
However, the weekly chart puts the dollar behavior into a wider context. The dollar index chart has been dominated by a very broad sideways trading band that started in March 2015. The upper level of the band is resistance near 1.00. The lower edge of the band is support near 0.93.
If support holds near 0.93 then traders will watch for a rebound rally and a retest of resistance near 0.97. That behavior will signal a continuation of the trading band behavior. Failure of support near 0.93 plunges the global economy into an unwelcome and unwanted currency war.
The dominant feature on the weekly dollar index chart was the broad trading band between 0.93 and 1.005.