Run with it or fade? There’s no doubt a few of you out there loving the run up. It’s been up for going on 6 weeks out of 7 and has put on over 600 pips in that time.
So what are the pros and cons for going long or short?
The aussie has several pluses in it’s favour;
- RBA has shifted the bias on rate cuts somewhat
- The euphoria surrounding the impending US deal is adding support to commodity currencies and general risk sentiment
- The pre US shutdown data was uninspiring leading to USD weakness and still a hunt for better yields.
- Major economies picking up will increase demand for commodities
Up up and away she goes, or does she?
The arguments against;
- Dollar bullishness from a US solution could outweigh the “risk on” factor.
- The slew of delayed data could bring the recovery back into focus, tapering back on the table
- Continued rises in the currency could force the RBA to change rhetoric over rate cuts.
- Australia’s economy isn’t firing on all cylinders and there’s still some worries over commodity investment
It’s all a question of timing. I can see the AUD gaining in the first instance before running into the fundamental wall that sent us down from above parity. I can see a case for AUD moving back to parity but it will be a very big hurdle to get over if it wants to move higher. On the way up there’s various hurdles to overcome.
AUD/USD weekly chart 15 10 2013
The 38.2 fib from the April fall at 0.9509 has been broken and the 50.0 fib comes in next at 0.9714. Before that we have the mid June high at 0.9668. After the 50 fib we have the 200 dma at 0.9775 and early June high at 0.9790.
AUD/USD daily chart 15 10 2013
My biggest interest (on the weekly chart) is up at the 61.8 fib at 0.9919 as the level has a convergence of the fib and the 200 & 55 wma between 0.9910 and 0.9925. As this comes ahead of parity it marks a decent level to take profits from longs and to look at getting into shorts. For shorts the 1.00 level will act as a natural last line with stops placed on a break.
I’m still in two minds whether these recent moves up will be maintained. I’d likely be enticed into a long if we get back and hold down at the 100 dma around 0.9280. This was one of the main points I was playing with last time looking for a confirmation of a break up or another test lower towards 0.90.
There’s a lot in the balance but there looks to be ample opportunity to play both sides of the trade and come out a winner.
