Here I am, writing about possible top in Australian Dollar, depending on most immediate changes in interest rates, when Reserve Bank of Australia announced what is going to do about it. Well, maybe no exactly, but RBA Governor made very clear that increase is coming. According to mister Stevens, current levels are still “rock bottom” and it would be unwise to leave them this low much longer. It appears that RBA’s main concern are escalating housing prices and authorities fear a bubble. Bumping interest rates up could make mortgages more costly, cooling down the market, although many increases would be needed.

With policy meeting just next week, expectations are for another 0.25% increase. Looking at today’s charts one might think that markets already priced it in. Australian Dollar had a very strong day, advancing broadly all Monday. Now, if for some reason rates remain unchanged next week, AUD will almost certainly drop hard, too. It happened before. For now, we have to see if there is continuation to today’s rally, over next few days. Just about all AUD crosses have important supports/resistances to overcome and they might be tested soon.

Meanwhile, GBP-JPY moved out of the small congestion zone established on Friday. I’ll be the first one to say that it was not easy to trade. Move happened right away at the open, or even before, if one could see early quotes. Depending on the platform used, there might have been small gaps just around breakout level.

I waited couple of hours and decided to go long on first pull back, at 137.89. Minor reversal pattern started to form there, good place as any. Target remained 100 pips, and that’s what the market gave. Move stopped at 139.00, or few pips above.

Opening action was very interesting, with many gaps. Unfortunately, all of them started to fill right away, providing no entry points, of the sort I’m looking for. But I decided to “fade the gap” in one pair that rarely makes gaps, especially that big. EUR-USD jumped about 90 pips higher when trading resumed on Sunday. We don’t see that very often. Gap started to close almost right away, and when it reached 1.3425, I bought EUR-USD with objective of 1.3500. Trade worked rather nicely.

I’m looking at EUR-CAD and GBP-NZD for possible buys.

For EUR-CAD intermediate term chart is used. Two tentative buy orders are placed, one at 1.3635 and second at 1.3870. If breakout at 1.3870 happens, objective of 1.4100 seems about right. For GBP-NZD order is placed at 2.1255, targeting 300 pips. I’ll follow up on these set ups in next update.

Mike K.