AUD/USD - Buy Alert

AUD/USD - Buy Alert

The US Federal Reserve is still pumping US Dollars into the global markets under its QE2 program. In the absence of other factors, this should lead the Australian Dollar higher against the US Dollar. Combined with Australia’s higher interest rates, and AUD demand increasing with higher commodity prices, there are a number of fundamental reasons why many traders think the next significant move in AUD/USD will be upwards.

Looking at the chart (below), the AUD/USD appears to be building up energy. This formation is often identified as an “ascending triangle”. This is an up-trend continuation pattern, and as the price approaches the apex of the triangle, a break upwards becomes more likely.



Source: Bloomberg

Aggressive and purely fundamental traders may already be long the AUD/USD, looking for tests of the resistance at 1.0185 (yellow line), 1.0202 (orange) and the twenty nine year high at 1.0256 (red), placing a stop loss below the up-trend line (green).

Other traders may prefer to wait for a pull back to the trend line support currently around 1.0050, or for a break of the most recent resistance at 1.0202.

If the AUD/USD trades above 1.0256 it is in uncharted territory. Profit levels can be determined in relation to the width of the triangle, or using Fibonacci projections, or using a rough rule of thumb that a break-out in currency could result in a 3-5% move.  Alternatively, traders may employ a trailing stop loss to capture the first significant move.

Possible Trading Levels

1)      Buy AUD/USD at current levels (1.0126), stop loss at 1.0040, take profit at 1.0485.

2)      Buy AUD/USD on a pullback to 1.0060, stop loss at 1.0025, take half profit at 1.0180

3)      Buy AUD/USD on a break of 1.0205, stop loss at 1.0165, take profit at 1.0485

You can follow us on Twitter - DaveCharts, RicCharts and Michael_CMC