Most of the Aussie charts look to be at a potential inflection point at the moment. Dave Land’s earlier post on the Aussie against the Euro is a great example.
Risk markets are pausing. Having adjusted for the possibility of ECB bond buying and better than anticipated employment data in the US, investors are looking for more concrete evidence of improvement before extending the current rally.
Momentum indicators suggest that markets are vulnerable to a considerable pull back if they encounter bad news in this situation. The Aussie charts look especially vulnerable having enjoyed steep rallies associated with safe haven buying and are now wrestling with the possibility of a more prolonged slowing in China’s growth rate than many had anticipated.
Aussie: Swiss (AUD:CHF) looks one of the most extended Aussie pairs to me and is in the early stages of what may develop into an interesting reversal pattern.
The first chart above is the daily. Here the RSI indicates falling momentum with a failure swing. This is a situation where RSI makes a lower high from the oversold zone (above 70) and follows that up with a break below the latest trend low (represented by the dashed line). For good measure the RSI followed this up with a retest of the dashed line which now represents resistance.
Falling momentum after a large rally can be useful for traders. It often precedes a significant reversal and is at the same time associated with a situation where chart patterns provide a logical place to position a relatively close stop if all that happens is sideways drift followed by a continuation of the uptrend.
The 2nd chart shows a more detailed view in the 4 hour time frame.
The work between the 2 blue lines has the early look of a potential rectangle trading range. The support line at the bottom is a bit early. To be confirmed we really need to see the current downtrend end.
The scenario that would most interest me here would be for the current minor decline to end soon and be followed a rally back to the resistance line. A 3rd rejection of the blue resistance line would be a classic triple top.
A typical way of handling that situation would be to sell on a confirmed trend peak at the top blue line. This could set up for a final move down to break the support and a potential major retracement of the whole rally. It would also enable a close initial stop on the other side of the resistance line for an attractive reward: risk setup.
A second reversal alternative though would for the current minor downtrend to go on with the job leading to a convincing move below the trough that starts the lower blue line. This would look like a double top setup