Trade Of The Week: AUDUSD Breaks Out Of Base

Trade of the Week: AUDUSD Breaks Out Of Base

Trade of the Week: The Australian Dollar enjoyed a surge higher last week, registering its biggest monthly gain since July 2013, as a combination of strong domestic data, improved risk-sentiment and a weaker US Dollar continue to support upside. 2015 4Q GDP last week printed well above expectations at 3% YoY vs 2.5% expected, and came as a confirmation of the RBA’s decision to leave rates on hold currently citing an improvement in spending in the Non-Mining parts of the economy and “reasonable prospects for continued growth in the economy, with inflation close to target”.

Recent CFTC COT positioning data shows that positioning in the Aussie has flipped net-long for the first time since early 2015 as falling US bond yields support the move into higher-yielding assets. Scope for further upside is supported by the breakout in Gold, with which AUD has a strong positive correlation due to domestic Gold mining activity, as it surges higher en-route to test the 2015 highs.

Trade Idea: With Order Flow having turned bullish and VWAP supporting also, the breakout in AUDUSD has left some interesting levels below market which could prove to be strong support if retested.

0.7341 is the first level I will be monitoring upon a retest and looking to buy (October 2015 high close). Below there I will be monitoring the 0.7230 support. Target for long trades is a retest of the spring 2015 broken support at .7530-90 area.

  • Update:  Short .7580 stop .7660 11/03
  • Update: Exit .7450 +130 pips 15/03

Despite this current strength, the long term trend in AUDUSD is still bearish and the 0.7590 area (April 2015 low close) could see decent selling interest emerge, which combined with profit tkaing on initial longs could see a reaction lower. If we move into .7590 first I will be monitoring for a potential short opportunity.
For updates on trade of the day set ups and the other trades I am currently monitoring be sure to follow me on Twitter @LFXJames