Early Monday brings events, which could determine the intermediate-term fate of the Australian Dollar. First, the inflation data in form of the Producer Price Index for Q1 is set for release. The forecast calls for annual decline to 2.2% from 2.9%. Falling inflation makes it easier for central bank to cut interest rates, thus be detrimental to the AUD as carry trade instrument. However, the real market mover is the Manufacturing PMI from China, coming one hour later. Even though this is a flash, or preliminary reading, markets will pay attention. In recent months, this indicator created a lot of volatility in the AUD, with spreads often jumping to 20-30 pips at the release and immediate moves in range of 60-80 pips. Even though this is a flash, or preliminary, reading markets will pay attention. If the PMI rises above latest result of 48.3, preferably above 50.0, the Australian Dollar should rally. At the same time, if the PMI disappoints, the AUD could go into a sharp selloff.

Interestingly, from technical perspective the Australian Dollar is at important level. In case of the AUD-JPY, it is trying hard to turn bullish. The price is right at the key, multiple resistance of 84.75. If today’s data forces a successful breakout above this resistance, the price could rally about 200 pips, with time of course. However, if the breakout fails immediately, a significant selloff under 84.00 is likely to happen fast. The story is similar across most of AUD pairs.

The AUD-USD is a little further behind, but after establishing a solid resistance at 1.0300, it is trying to rally. Here, the immediate resistance is at 1.0390, which, if broken, should clear the path for advance to 1.0450 in the short-term. On even more ambitions note, if today’s data proves to be truly positive, the AUD-USD could easily extend gains to about 1.0600 within days. Alternatively, a failed breakout above 1.0390 will probably sink the price back to 1.0300 or even below. Either way, early trading today could be volatile.

Mike K.

On similar note, financial markets in most countries are closed on Monday, but we still have data scheduled from release, including couple of important pieces. The Trade Balance from Japan certainly has the potential to move currencies, especially the Yen. In addition, the Consumer Price Index from China could create a spike in volatility, particularly among the commodity currencies. As always, the Australian Dollar should be most active. I am perfectly content to wait this out and start on Tuesday, with the exception of the JPY, where I might place some sell orders.

Before my hiatus, I discussed a possible sell in the NZD-JPY at around 66.50. Since then, the price rallied but kept returning to this level, making an even more compelling case for shorting this pair. There was a minor breakout on Friday, which I ignored for the reasons mentioned earlier, but now I have a sell at 66.40 looking for at least 100 pips. That said, I would still cancel this trade if conditions remain very thin, meaning very wide spreads. Anything above 10-12 pips suggests lack of participation, the type of environment when whips are possible and even likely.

Another potential trade covered on these pages was a buy in the EUR-CHF. My idea was to go long above 1.2070. The price missed the entry by about two pips and kept falling, eventually testing the 1.20 floor. In response, the SNB promised to defend it with “utmost determination and unlimited Euro buying”. We shall see just how committed they are but I bought the EUR-CHF on Friday at 1.2010. Objective right now is the 1.2070 resistance, risking 30 pips. Realistically, I am prepared to sit on this as long as 2-3 weeks.

Daily chart of the AUD-CAD was suggesting a bearish breakout under 1.0335, which finally materialized. This was not a smooth trade, with the price action less than decisive, but last week it reached 1.0118, just short of my 1.0100 objective. Two more days, which brought a hammer and a doji, convinced me to get out at 1.0224 for 106 pips gain. The main trend remains bearish, but I am done here for now.

Mike K.

Things changed shortly after, when BHP Billiton, the world’s biggest miner, raised concerns about the possibility of a sharp slowdown in demand from China, its top metals consumer. No hard numbers were released, but all of a sudden, everybody remembered that earlier this month China cut its 2012 growth target to an eight-year low of 7.5%. That was enough to send the Australian Dollar, and the other commodity currencies sharply lower. We still have few hours of trading left, and it will be interesting to see if there is another price swing down.

On Sunday, I discussed a possible trade in the AUD-CAD, looking for a short-term bearish reversal using the hourly chart. I sold it at 1.0504, following first hourly bearish candlestick. The price movement here was relatively slow, but eventually the trade brought a profit of 30 pips. I could have held out for another 10 pips, but in my mind the trade had already been taking too long, so pocketing gains was the right thing to do. BTW, another short trade in this pair in this pair, using the daily chart is still possible.

From a shorter-term perspective, I am looking for a trade in the GBP-JPY. On the 15 M charts, the price appears to be forming a bearish reversal, with the latest low at 132.24. I want to sell it at 132.20 with 60 pips objective. If I am right, this could happen relatively fast, as it often does in this pair.

Mike K.

Recently, officials from Australia started to complain about strength of the Aussie. No threats of intervention yet, but it was a change in attitude, following months of no comments on the subject. If Mr. Stevens expresses some concerns, the AUD could respond with a selloff. This would be in line with short-term technical picture in some of the AUD pairs. The AUD-CAD, for example, advanced about 170 pips in the last two days and could be ready for a correction (AUD-USD is virtually identical). On this chart, I would like to see a bearish reversal candlestick pattern to provide entry, with objective of 30-40 pips. That would be a case of fundamentals lining up with technicals.

From a longer-term perspective, the AUD-CAD just completed a major correction, falling from 1.0781 to 1.0335. Now we need to see if this is a major reversal or only a big pullback within the uptrend. That will be decided when (if) the price returns to 1.0335. A bearish breakout there will probably send the AUD-CAD towards the parity, or at least 1.01. Of course, this will take some time, so in the meantime I will also look for a potential bearish reversal on 4 H chart, which , so far, does not show anything of value to me.

The Swiss Franc reacted in manner contrary to what most would expect. It got weaker before the SNB meeting, but recovered after the announcement. The central bank confirmed its intentions to defend the 1.20 level and the EUR-CHF promptly pulled back to that general area. I would expect the price to start moving much slower, in tight ranges and quietly form a bottom before another price run up. There is no trade here yet, but I will be on a lookout for one. In addition, opening gaps are always possible and could create opportunities. Have a great trading week!

Mike K.

For this patter to become official, the EUR-AUD must advance above the high of 1.2616. It is not only a resistance here, but crossing this level would also complete the Cup with Handle pattern. At this point, the EUR-AUD would be officially, from a technical perspective, in an uptrend, with a target of around 1.2950 or so.

Rebounding from a steep correction, the CAD-CHF returned to its prior high for the trend at 0.9400. Couple of weeks ago, the price found support at the 50% Fibonacci retracement level or 0.8934. This confirmed the bullish sentiment, in particular when combined with rising volatility, as shown by the ATR.

Now the CAD must close above the 0.94 handle, in order to continue its rise. The ADX is rising, supporting a trend gaining momentum, and the price is above all important support levels. However, breaking key levels is not always easy, so we must on careful of potential fake breakout. The CAD-CHF is likely to attempt a move soon, perhaps even today.

All of the Japanese Yen pairs have been advancing strongly for several months now and the NZD-JPY is no exception. Here the price gained over 1100 pips, reaching as high as 68.32. At this point, however, this pair went through its first significant correction of the uptrend and dropped to 65.31, before recovering to the 68.33 on Wednesday.

For the rally to continue, the NZD-JPY must close above this level on daily basis, which could prove difficult. The RSI developed a divergence, suggesting that the trend is not as strong. Another indicator, the ADX is in concurrence, having gone flat and not rising any longer. All this points towards a continuation period in the NZD-JPY, even if the general sentiment is still bullish.

Mike K.

The rally in the EUR-CAD, which lifted it from 1.2875 to 1.3479, hit an obstacle last week. It came as a combination of things, which included the 100 SMA, previous resistance level and overextended price. Bollinger bands, with the price clearly above, demonstrated that particular aspect. A bearish candlestick pattern, the dark cloud cover, marked the turning point.

By now, the EUR-CAD retreated to 1.3025, where it found an earlier established support. The price movement is likely to slow down now, trapping this pair in a consolidation, also defined before the latest advance. We should expect smaller price swings, within the 1.3025-1.3241 range. Eventual breakout will probably determine the next direction of the EUR-CAD.

AUD-JPY.

Among the best performing currency pairs in 2012, the AUD-JPY, the AUD-JPY has shown significant gains. Last week it reached as high as 87.99, where it encountered a strong resistance. Together with severely oversold RSI indicator, that proved too difficult to cross, at least for now. The price developed a reversal pattern and turned south, touching 84.80 in early Wednesday trading.

While this correction appears sharp, it is of normal proportions, considering the size of the preceding rally. In fact, it might not be much larger. It depends what happens at the next supported level, or the 84 area. We should watch carefully, because the AUD-JPY could resume the uptrend from there. Otherwise, the price will head for the 81 handle, where the main trendline is waiting.

GBP-NZD.

Finally, after a prolonged slowdown, the GBP-NZD started to increase in volatility. The price moved higher, taking cue from multiple divergences with technical indicators. On Monday, in one swift jump, the GBP-NZD broke the minor resistance at 1.9130. It continued to advance on Tuesday, reaching 1.9483, almost the implied resistance of the 1.95 level.

Here things get tricky for this rally. The price developed a large shooting star, which is a bearish candlestick reversal pattern, probably marking the extent of this run up. For a full-blown reversal, we need to see another large bearish candlestick on Wednesday, now in early stages of formation. The short-term direction of the GBP-NZD depends on how the price will close today.

CHF-JPY.

In line with most other Japanese yen pairs, the CHF-JPY hit an important high last week. Its impressive advance pushed the price to 90.23, a resistance level from an earlier high. There the rally lost momentum, and the CHF-JPY started to pull back. In early Wednesday trading, this correction touched as low as 87.67.

So far, the price has not reached any established support levels. Because of that, we can use the Fibonacci retracement levels for some possibilities. The 38% is at 87.00, while the 50% is at 85.70. If the CHF-JPY is going to retain the general bullish sentiment, one of these levels should become a support. If not, this correction could turn into a bearish reversal, but we need to see more price development.

Mike K.

Analysts link Aussies’s growing popularity to its Chinese connection. Many traders supposedly use the AUD in order to trade data from China, since the Yuan is not a floating currency. Others point to the comparably high interest rates, as reason for the carry trade. However, the carry trade is more of a buy and hold approach, so it does not add much in terms of day-to-day volume. These and other explanations are not satisfactory to an average trader, who is looking for good trading vehicle in day-to-day activity. So, let us take a look at other characteristics of the AUD-USD, and see how it compares to, say, the GBP-USD.

First of all, costs of trading the Aussie have gone down in recent years, and by costs, I mean the spread. Not that long ago the AUD-USD was typically quoted with 4-5 pips spread. Not anymore. These days most reputable brokers offer the Aussie at 2 pips or below, virtually the same as cable. At times, even during the most active London hours, the spread in the AUD-USD is lower than cable, making it a very attractive instrument to trade.

Another measure of a good instrument for active traders is intraday volatility. Using a simple 10-day ATR, we can see that over last several months the AUD-USD has been moving as much. And at times even more than the GBP-USD. At present, in the midst of consolidation, the Aussie moves less, with ATR a little above 90, while the cable’s reading is just over 100. On balance, these results are comparable. For as long as the AUD-USD is close to parity and above, it should retain good intraday volatility.

When it comes to around the clock activity, the Australian Dollar certainly holds its own, too. All currencies are active during the London and New York sessions, but that is not necessarily the case in early trading. That is when the Aussie stands out. Obviously, these are Australian business hours, when market-moving events take place. However, even on days without scheduled economic announcements, the AUD-USD presents trading opportunities in early hours. The charts above are from last Friday, 03.02.2012, when the calendar was empty, yet the AUD-USD moved about 35 pips, while the GBP-USD managed only roughly 25.

One could argue whether the Australian Dollar is truly a “major” currency and present all kinds of reasons that it is not. Nonetheless, from a trader’s perspective, the Aussie is as good instrument as any, and should not be discounted as a secondary option. It presents as many opportunities as the other big names in Forex.

Mike K.

For the last two months, the GBP-AUD has been in a consolidation, still in historic bear market. This downtrend has lasted for, well, almost forever, since late 2008, with very few corrective rebounds along the way. In mid February, the price made another all time low at 1.4621, but for all practical purposes, it is drifting sideways. The question is, are we dealing with another consolidation, before another leg down, or is it a slow-building rounded bottom. Rounded bottom could be confirmed on a breakout above 1.4900, suggesting a rally to about 1.55 within weeks. The best thing about rounded bottoms is their staying power. Once properly formed, they tend to hold for a long time, meaning that a rally from here should last for weeks or even months.

The GBP-NZD is in almost identical situation to the GBP-AUD. The main difference is that the February low of 1.8629 is not the all time extreme. That took place last year at 1.8542. Otherwise, the picture is the virtually the same, a consolidation within the downtrend or a rounded bottom. For the GBP-NZD, the key resistance is at 1.9130. If the rounded bottom materializes, this pair could certainly rally to 2.0200 or so relatively fast. Of course, the reversal process is not complete, but worth watching.

While on the subject of the Kiwi… The NZD-USD sold off last week, especially on Friday. Because the price closed near the daily extreme, I will be looking for a short-term reversal on Monday, much as I did a week ago in Yen pairs. Using hourly chart, I want to see a bullish reversal candlestick pattern, one that stands out. The target here must be proportionate to average price swings, so it will be on a small side, 25-30 pips. In addition, gaps are always possible, possibly creating trading opportunities. Have a great trading week!

Mike K.

Today Spain delivered another surprise. The country announced that the budget deficit for 2012 would likely be as high as 5.8% of the gross domestic product, exceeding the target of 4.4% agreed with the EU. In 2013, however, it should drop to 3%. The larger than expected deficit is a big deal, because Spain could be next in line for bailout or some other sort of financial assistance. To make matters worse, Spain continued to lose jobs at a fast pace in February, suggesting the local economy continued to contract in the first quarter. According to data released by the country’s Labour Ministry, February jobless claims rose by 112,269, or 2.44% from January, likely pushing the country’s 23.3% unemployment rate even higher. Total jobless claims stood at just over 4.7 million, the worst reading in at least 15 years. In response, the yield on Spanish 10-year bonds increased to 4.92%, higher rates on Italian securities. There were some negative comments from the member states and the Euro kept falling most of the day.

Couple of days ago I discussed a buy in the AUD-NZD pair. The idea was to buy it on a move above the latest minor high, with the order at 1.2865. My objective was 65 pips. The price indeed went in the right direction, reaching my target. Well, almost reaching it. On this platform, it only climbed to 1.5929 on the bid, one lousy pip short of my target, and started to fall. I closed the trade a little later for 39 pips gain. Better to take profits than to wait until Monday. Have a great weekend!

Mike K.

No surprise meant no big moves. The immediate impact was limited, with small rally in Euro and other currencies. Things did change during Ben Bernanke’s Q and A and Capitol Hill. Probably the most important part, or at least the one that moved currencies, involved more easing. FED Chief said that current policies were highly accommodative, so no new easing steps are expected in the near future. This proved to be good for the Dollar, which gained broadly, in some cases as much as 100 pips in short order.

I did not pay real attention to Mr. Bernanke, as his speeches had little impact recently. However, the markets froze of sorts before that, with bullish breakouts not really going anywhere, so I decided to short the EUR-USD in one of my secondary Forex accounts. Entry was at 1.3465, with a loose objective of 40-50 pips. After seeing how currencies behaved, I decided to sit on it for a little longer. About an hour later, I closed it for 99 pips gain. Unorthodox trade for me, but it worked, although the size was too small…

The AUD-NZD is trying to reverse. It is a slow process, following the long downtrend in this pair. On the 4H chart, the price made several attempts, but failed every time. Now this chart shows a minor top at 1.2856, which could be a good entry if the reversal indeed happens. I have buy order at 1.2865 in case the AUD-NZD makes a run here. There are couple of possible objectives here, with the lower one more likely to be reached. It is about 65 pips above the entry.

Mike K.