Short term
Trade view / 10 July 2015 at 1:37 GMT

AUDUSD shows some short-term spark

Managing Director / Technical Research Limited
New Zealand
Instrument: AUDUSD
Price target:
Market price:
Background

AUDUSD bounced yesterday in line with the Chinese stockmarket and will be driven by it again today. Iron ore has been matching the Shanghai composite of late and that explains the link with the AUD.

Australia’s labour market data had little impact on the currency. Assuming AUDUSD comes through China’s stockmarket volatility today, attention will turn to Fed chair Janet Yellen’s speech later today on the US economic situation.

With fed funds futures pricing in a less than 20% chance of a rate hike in September, dollar bulls will want to see a bullish assessment from Yellen. They are likely to be disappointed. Hence the dollar will come under pressure and the AUDUSD rally continue.

Management and risk description

The AUD has sold off strongly over past days (refer daily chart below) and having reached a low of .7370 on Wednesday, a (potential) developing Inverse Head and Shoulders formation is apparent on the hourly chart (refer hourly chart below), where a sustained break above Neckline resistance today (currently situated at the .7480 level) will establish an upside objective of .7590/.7610.

In the meantime, support at .7435/.7420 should hold, to maintain this short-term upside potential. I have outlined a trade (below) to capitalise upon this developing situation.

Parameters

Entry: For today only - buying AUDUSD upon a break above .7490

Stop:
.7457, initially.

Target:
50% at .7530 and 50% at .7585
 
Time horizon: Allow a few days for both targets to be met

AUDUSD hourly chart (click to expand)
AUDUSD hourly chart
Source: ThomsonReuters

AUDUSD daily chart (click to expand)
AUDUSD Daily Chart
Source: ThomsonReuters

AUDUSD weekly chart (click to expand)
AUDUSD weekly chart Source: ThomsonReuters

-- Edited by Adam Courtenay

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