steve.jarvis's picture

Australian Dollar - set for a period of broad-based weakness?

In preparation for Tradermade's internal strategy meeting each week, I look at every single possible pairing for each of 10 major currencies, quoted both ways (that's 90 charts in total), and from this I prepare a ranking order from 1 to 10.  Each week tends to see a few changes in position, and I look for Currencies moving into or out of the bullish or bearish groups which top and tail my list, to try and pick up significant trend changes at an early point, before the world and his wife catches on!  This week I noted the fewest changes of position since I started doing this, and within the neutral category there seemed very little to choose between EUR, GBP, AUD & NZD.

Normally I can count on the process described above to identify a number of interesting chart situations, where certain pairs which were maybe neutral last week have now turned either bullish or bearish.  But earlier this week, no such luck, so Plan B was called for!

I reassessed all of the neutral currencies, looking for any which were showing possible evidence of base building or potentially topping out. This showed the Australian Dollar in an altogether different light.  While it was technically the most neutral of the 10 - in an uptrend against 2, a downtrend against 2, and neutral against 5, the charts showed clear potential for a broad deterioration.  It had already been heading steadily lower against the USD Dollar & Canadian Dollar (our current numbers 1 & 2 - the first two charts below) for quite some time, but many of its 5 currently neutral charts showed clear potential for a deterioration.





Charts above - left to right. AUD/USD, AUD/CAD, AUD/JPY & AUD/NOK.  Click on each chart to see a larger image pop-up.

A couple of days on and these fears may already be coming to fruition. Possible key lower tops now in place against the EUR, GBP, SEK & CHF and a breakdown against the NZD (all shown below, except AUD/CHF).  Only against the current bottom two in our rankings, JPY & NOK (the two right hand charts above), does the latest bout of weakness look corrective.  Over the short-term AUD losses are starting to get a bit stretched and a relief rally could commence before too long.  However, at the current time, such a bounce would be classed as corrective and could simply offer a better place to establish  short positions in anticipation of continued weakness over the weeks ahead.

Charts below - left to right. AUD/EUR, AUD/GBP, AUD/SEK & AUD/NZD.  Click on each chart to see a larger image pop-up.