AUDUSD: Aussie On The Ropes

With AUDUSD still stuck in a tightly congested range at previous YTD lows after an 800pip September sell off, the question is, where do we go now?

Well, there are three crucial elements in play this week: RBA Minutes release, China data & Aussie CPI.

Market participants will be keenly awaiting the RBA Minutes released tonight at 0030GMT. Last December, RBA Governor Stevens said, on AUD fair value, “I thought 0.85 would be closer to the mark than 0.95, but really, I don’t think we can be that precise”. With price hovering just above that level and finding stability despite a sell-off in risk assets, more broadly, a signal that the RBA is still uncomfortable with the current level of the currency could further weaken the pair.

In addition to this, we have important data out of China in the overnight session with GDP, Retail Sales & Industrial Production figures all on the deck. Should these figures come in weaker, in line with a recent spate of disappointing global data then this should signal further AUDUSD downside too with iron ore prices tumbling on expected weakness out of China.

The COT report reflected heavy AUD short positioning with an increased USD long. Should data weakness transpire and risk aversion continue, we should see AUDUSD unravel to the downside. Our Littlefish COT Indicator displays clear bearishness in the pair with Momentum & Index still firmly at lows whilst Strength & Net Positioning continue to the downside.

$AUDUSD (Daily) 23_05_2014 - 20_10_2014

Price is currently sitting in a smaller sub channel in the bottom half of a much larger, long term bearish channel and should YTD lows give way the first logical targets will be retests of the two channel lows between .8380 – 8480. Below these areas there is also a support level at .8047 where 2010 lows were made.

On Balance Volume has been coming off since September and Daily Order Book Regression & Psychology Indicators have both crossed to the downside signalling room for a move lower.

00aud

I will look to trade this in two ways. If we move higher and retest the highs of the current consolidation at .8890s I will enter on any rejection candles that form. Sizing will be small to start with and will increase as Order Flow indicators confirm the move.

Alternatively, I will use the H1 chart to trade a breakdown through the trendline from recent lows, again small in size and will look to increase positioning on a Daily break of the consolidation lows, targeting a retest of the longer term trendlines.

00aud2

If price breaks to the upside and we don’t get any rejection candles I won’t be looking at shorts again until we retest the broken support around .9200. If Daily Order Flow Indicators cross to the upside on a break higher I will use lower timeframes to enter small longs targeting the .92 level.

00aud3

The next steps in this pair are very much data dependent, so make sure to tune into our Morning Report each day to get the latest news & analysis and updates on this setup.

To find out more about the Indicators featured in this piece check out our Indicators page, and to learn exactly how we use them to trade the markets profitably, be sure to check out our brand new Forex Trading Course which comes with complete trading plans, example videos, indicators and video strategies.