steve.jarvis's picture

Early signs of a broad-based Australian Dollar recovery

The Australian Dollar has been a notable improver in our FX rankings this past week, having crossed above the Euro & Swiss Franc which are heading in the other direction.  Having looked at the Australian Dollar against all of the other major currencies, it is already bullish against the Norwegian Krona & Swedish Krona (which remain at the bottom of our rankings) and against a number of others is either in recovery mode or shows potential to start doing so soon.  The beauty of looking at some of the more "unusual" cross-rates is that they can throw up some nice-looking chart patterns which the market at large is unaware of.

I think the AUD/SEK chart is of particular interest, given the 3 wave correction to the January-September 5.5771-6.6573 bottomed at 6.1877 in December, just over the rising 260 day (1 year) moving average.  The latest advance has taken out October's lower top at 6.5327, has a bullishly diverging MACD indicator and there is now a golden cross of the 22 & 65 day (1 & 3 month) moving averages.  These are all positive signs.

However, I would caution against chasing this higher at the current time and would look to be placing low-risk entry points on an initial setback.  My expectation is for a partial retracement of the rise from December's low to at least the 6.40-6.45 region and possibly as far as 6.30-6.35, before leaving a higher low for a renewed advance.  We then look for a fresh advance to take out last September's 6.6573 peak, heading in the direction of 6.80-6.90 over the coming 1-3 months, possibly to nearer 7.10-7.15 further out.

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