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February 5th, 2014 at 6:51 pm

Will the AUD Rally Now?

The European Central Bank and the Bank of England hold their policy meetings today. Media are full of tedious speculation about what to expect, but in the end, the only thing that matters is response of the markets. Since I do not place trades before these events attempting to catch a move if this or that happens, it is difficult for me to have anything constructive to add to the subject at this time. However, once the meetings conclude AND currencies actually do something, we might have somewhat clearer picture about what to expect in the future. Take the Australian Dollar, for example. On Tuesday, the RBA made no changes to its official rate, leaving it at 2.5%, yet the currency rallied strongly. The central bank indicated it was happy with rates, talking about “a period of stability in interest rates” meaning no cuts in the near future. Perhaps more importantly, though, there was no reference to the AUD as being “uncomfortably high”. The currency immediately appreciated sharply and this just could be a start to longer-term rally.

AUD-USD 03-05

Technicals support a rally of some magnitude, especially the long-term chart. On the weekly graph, we can see a strong divergence with the MACD indicator, which is relatively rare on this time frame. Looking at latest highs and lows, this chart suggests a likely advance, perhaps as high as 0.95 or so. Of course, this would probably take a long time, measured in weeks and maybe even months, a little too long for me to trade. However, smaller time frames, like the daily and 4H might offer tradable opportunities soon on the buy side.

CAD-CHF 02-05

Due to central banks’ meetings, I do not really want to trade any Euro and Pound pairs on Thursday, at least not in the way I cover on these pages. Perhaps after the events. While waiting, the CAD-CHF, among others, might offer a decent chance for a few pips. This pair is trying to reverse a prolonged downtrend, with the price repeatedly testing the key resistance of 0.8200. A breakout above this level, if successful, will probably propel the price to the 0.83 handle. At times, this pair can move rapidly, although realistically, I would expect several days for the target to be reached.

Mike K.

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