By: Mike Kulej
After reaching the parity with the USD, the Australian Dollar retreated to 0.9670. Another attempt at the all time high failed, when the move stalled at 0.9973. On Wednesday, the price tested the new support, at 0.9670, and even dipped to 0.9651, but did not remain there for long, recovering immediately.
This recent action establishes a trading range, on the intermediate time frame at least. The AUD-USD seems to move freely through the 100 SMA, indicating market indecision. Same message is sent by the MACD, which oscillates easily around the zero line, pointing to a lack of trend. Which direction is the breakout likely to happen?
Trading ranges do not provide many clues, because price “waits” for a catalyst to spur a movement either way. However, in this case, a possible downside direction has a slight edge. The last run up did not produce a new high, while the sell off managed to undercut the previous low, if not by much.
This tilts the odds toward a downside breakout. In addition, the Australian dollar appears to be very responsive to negative news, no matter how minor. In early trading on Wednesday, the AUD-USD fell 60 pips in one minute on CPI news. That set tone for an all day sell off. More news not meeting expectations can easily send the Aussie sharply down.
