The AUD/USD appears to be breaking upwards, breaching both resistance and a the medium term trend line. Fundamentals are less clear – many commentators are attributing recent weakness to anticipation of further interest rate cuts – a condition that was present for the last sixteen months. My take is that it relates more to USD moves.
Recent USD strength against Euro, and ongoing strength versus Yen, is a more likely explanation for the fall in AUD. With G7 announcements (unfairly?) rounding on Yen weakness, we may be in for a face-saving round of USD weakness – at least that’s what the charts are suggesting.
AUD/USD – 4 Hourly
Note the simultaneous break of resistance and trend. (Resistance relates to activity in November and December on the daily chart- not visible on this chart). While oscillators are suggesting the pair may be overbought, the increase in volatility (check the widening Bollinger Bands) may see these conditions continue.
Regular readers will know that an attractive risk to reward ratio is a key component of my trading strategy. With potential for moves towards 1.0490 and then 1.0600, and a tight stop loss just below 1.0350, I’m looking at the following: