Technicals | Jun 21 2012
By Andrew Nelson
FX chartists at ANZ are seeing an increasing numbers of signs that we could be in store for a retracement in the Aussie dollar.
While the structure of the Aussie’s latest run remains intact, the bank’s Asia Global Markets head, Tim Riddell, notes the momentum indicators are starting to display a divergence, which may be suggesting an increasing risk of sharp corrections.
He points there was notable divergence in the daily momentum indicator after the AUD/USD extended on the downside to 0.9580 in early June and AUD/USD has pretty much matched 50% of the decline since late February. Riddell points out that retracement level matches up with the base of April’s consolidation around 1.0225. This means 1.0225 could well provide some stiff resistance.
While Riddell admits the positive structure of the rally remains intact and it would be easy to hope to ride it up towards 1.0370, he warns the risk of an equally sharp corrective is hiding in the shadows.
One thing that troubles Riddell is that the Aussie’s first push past parity was a bit of jagged line, but the push higher since June 12 move hasn’t seen a pullback of note. Adding to his case, Riddell points out that the structure of this latest push from 0.9850 looks likes it nearing completion, noting the potential for a decline in momentum indicators.
What Riddell sees in his crystal ball is a little more Aussie strength leading into anticipation of a big correction. He says a good entry for a short AUD position would be on a minor breach of the 50% retracement level and April’s low at 1.0220-25. Any sort of faltering beyond that point should see a sharp pullback to the 1.0040-60 zone within a total correction that could revisit the 0.9910-80 neighbourhood.
There is also the risk of an earlier failure, with any decline past .0135 possibly sparking a downward run back past parity, says Riddell.
Technical limitations
If you are reading this story through a third party distribution channel and you cannot see charts included, we apologise, but technical limitations are to blame.
Find out why FNArena subscribers like the service so much: "Your Feedback (Thank You)" – Warning this story contains unashamedly positive feedback on the service provided.
