Futures higher; NFPs fallout; Cisco shares slide - what’s moving markets
Originally published by Guppytraders.com
The Australian dollar has slipped from a peak of US$0.81 to a low of US$0.79 before developing an uncertain rebound. Can the Australian dollar find genuine support near US$0.71 or is Australian dollar weakness going to continue to develop? This is the first question traders are asking. Alternatively, is the underlying uptrend strength solid enough to develop a sustainable rebound and breakout above resistance near US$0.81? This is the second question, usually asked by investors with a longer term view of the market.
Its difficult to ignore the performance of the US dollar as the Aussie strength is often a direct consequence of weakness in the US dollar which has plunged to $0.91 on the dollar index chart. The mild US dollar recovery to $0.93 has coincided with the weakness in the Australian dollar.
Although the Australian dollar may be driven by the strength of the US dollar it’s the behaviour of the Australian dollar that sets the breakout targets.
The key part of the answer to both questions is the strength of support near US$0.77 and the strength of the uptrend as revealed by the Guppy Multiple Moving Average indicator.
We use Guppy Multiple Moving Averages (GMMA) indicator analysis to identify trend strength and trend changes. Trend confirmation comes when the long term GMMA is well separated because this shows the investors are confident of trend continuation. Currently the long term GMMA has the greatest degree of separation it has shown in 12 months. After a prolonged period where the long term GMMA separation was very narrow the GMMA has moved upwards and developed good separation. This usually indicates solid trending behavior.
The Australian dollar is testing long term support near US$0.77. This was a strong resistance level from 2016 April until 2017 July. This suggests this level can provide a strong support feature.
The combination of this strong support feature and the good separation in the long term GMMA suggest the Australian dollar will rebound and retest the resistance highs near US$0.81.
However, given the historical relationship between the Australian and US dollars this rally is likely to be temporary as the US dollar also develops a rebound. The Australian and US dollars have an inverse relationship that is led by the US dollar. US dollar weakness lifts the Australian dollar. Ultimately US dollar strength will translate into Australian dollar weakness.
This suggests Australian dollar rebound rally strength is temporary unless the US dollar resumes its downward trend. Technically the Australian dollar is poised for a rebound but this rebound is threatened by the potential for the US dollar to move above $0.93.
We use the ANTSSYS trade and analysis method to identify the opportunities as the trend develops. A sustained rebound above US$0.77. is a signal for trend continuation towards US$0.81..
Daryl Guppy is a leading international financial technical analysis expert and special consultant to Axicorp. Guppy appears regularly on CNBC Asia and is known as "The Chart Man". Disclaimer: Daryl Guppy is not a financial advisor. These notes are for educational purposes only and provide an example of applied technical analysis.