Technicals | Jun 26 2013
Bottom Line 25/06/13
Daily Trend: Down
Weekly Trend: Down
Monthly Trend: Down
Technical Discussion
The Aussie dollar has slid to 91.40 in recent trading and the dramatic push below our all important 94.00 support line has now weakened things enough to take our more intermediate term bullish aspirations off the table. It would be very easy to now just wash our hands completely of this from a bullish perspective, yet longer term, I'm still not prepared to do so just yet. And this is basically the reason why I have turned to the longer term monthly chart tonight to try and put things into perspective in relation to this statement. We rarely look at monthly charts yet I think under the present circumstances, the decision to do so is a valid one. And although the quantitative easing red herring over in the States is having influence on this bout of weakness in our currency, I think China is the real cause in relation to what we are witnessing right here. Especially amid heightened concerns over there to a cash crunch and / or efforts by the government to prevent asset bubbles.
And did you see the Shanghai Composite Index yesterday ? Down well over 100 points and today at the 'half way' mark down another 75 !! The December 2012 1970 lows have now been sliced through without a care in the world and it has really turned into a full on bearish rout over there at the moment. This market needed a clean out but I don't think anyone would have predicted what we have witnessed in the last couple of days. And the even more disturbing thing about all this is that there is little in the way of technical support now, until the major October 2008 post GFC lows circa 1665. What a mess, and our Dollar really has no where to hide as a consequence until stability can return.
So with a big double bottom potentially looming over in China, this is certainly going to provide scope for even lower levels within our currency. Yet the reason I've wheeled out the monthly chart tonight is to our back our argument that longer term, all may still not be lost here. So still longer term bullish yet with those aspirations simply delayed somewhat. The picture will deteriorate below the 80.00 mark though which is the deeper 61.8% retracement zone and also aligned to a very strong line of support. Price has now tagged the 38.2% pullback area at 91.40, with the 'steadying' 50.0% area coming in at 85.40. How bad things are going to be perceived in China over the coming months is really going to dictate how low we go here. Things are weak now, yet 5-wave patterns once completed do have breathers that generally unfold as three wave patterns into the typical 50.0% – 61.8% retracement zones.
And these numbers come in at 85.40 and 79.40 respectively and have recently become reality now that our more shallow option has failed on us. And as this is a higher degree pattern we are looking at here, it means wiping out a lot of points to get where it needs to go. The mid 2011 highs above 110.00 continues to be labelled as a higher degree Wave-(1) or (A) as part of an even higher degree count. And that simply means historical highs still potentially await, be it the early stages of this process are now unlikely to kick into gear until later on this year or early next year. And all dependent of course on 80.00 support holding strong. What a journey this one has been with plenty more still to come I'm sure.
Trading Strategy
If we are granted an upcoming consolidation phase that provides a low risk pattern to short the currency, then we will certainly be happy to oblige and trade this down to the next target zone which sits at the 85.00 mark. I'd certainly be looking for buyer support around this price level if we get there, so profit targets will certainly be a valid part of such a strategy. Stand a side for now yet keep an eye on our Global Position Status Area in between reviews as volatility is likely to be the common theme across numerous markets over the coming weeks. Which means agile trading is likely to be required for those who wish to get involved.
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