Technicals | Jun 01 2016
Bottom Line 31/05/16
Daily Trend: Down
Weekly Trend: Down
Monthly Trend: Down
Support Levels: 71.40 / 69.70 / 68.20
Resistance Levels: 74.00 / 75.40 / 77.20 / 78.40
Technical Discussion
The AUD fundamentally looks to be at the mercy of a raft of upcoming data releases that could well dictate whether the all important 71.40 price point is going to be able to hold up over the coming weeks or not. Janet Yellen continues to strongly jaw bone the need for further rate hikes, potentially two more before the year is out, which may well put a floor under the USD for the time being. Today monthly building approvals will be released along with CPI and employment figures in the Eurozone. Wednesday we look out for GDP figures combined with manufacturing data out of China. Then this will be followed up on Thursday with retail sales figures, and Friday with the non farm pay roles. All potential currency movers so expect volatility this week.
Reasons to stay neutral (bearish again below 71.40):
→ Inflation remains in check in Australia (deflation a concern)
→ unemployment remains an issue yet recent reporting more positive
→ Further interest rates drops still possible
→ support zone 67.00 – 68.00 continues to hold
As readers on these pages know, we were very optimistic about the price move higher off the 15th January low at 68.20. It was a 5-wave structure which is exactly what you want to see as part of potential trend reversals, and the move fitted in nicely with all of Elliott's core rulings. Even though we were expecting a pullback off this move with some reasonable depth attached, there are some red flags now in play that we are a little concerned about. Firstly the retracement has been impulsive to the downside so clearly stronger than we normally like to see if the initial move higher is to have bullish backing on a longer term basis. Also we normally like to see price pull back no deeper than the 50.0% – 61.8% retracement zone which aligns 73.30 and 72.10 respectively. Price on this move has now tagged 71.40, so lower than what we would normally like to see.
We do sometimes look at another Fibonacci number especially for Wave-2's and that is the 78.6% retracement zone which in this case measures in at 70.40. From our experience though, this sort of depth can be damaging so its not one we often refer to. For now we are ok (just !) with the 71.40 low point yet this is our line in the sand where we need price to make a recovery from and not head any lower. We still have our eye on the larger bullish reverse head and shoulders pattern as well . It is complex (note the two heads) yet it doesn't trigger until 78.40 can be broken past. It has a solid target of 90.00 if this can be achieved though. On the flip side, symmetry within this pattern break downs badly below 71.40. So right at this juncture, its all eyes on 71.40 !
Trading Strategy
We continue to try and maneuver ourselves for another trade on the long side yet basis our analysis price appears to be doing everything in its power to cancel our pending trade recommendation. For now our aggressive strategy is to trade long at 72.70 with stops below 71.40 if triggered. Yet any price drop below 71.40 from here and the recommendation will be taken off the table. A shorting opportunity could be considered below 71.40 for agile traders, yet as things presently sit, the risk reward doesn't look that great so this is not a trade we are going to recommend right at this point in time.
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