I'm always interested when I see markets arrive at significant technical levels when potentially game changing news is also scheduled.
Market expectations for short term interest rates are generally looked upon as being the number one driver of foreign exchange rates. There will be plenty of central bank news this week which may have a bearing on this
Of particular interest for the AUD: USD will be a speech by Ben Bernanke tonight and tomorrow's RBA meeting.
Nothing may come of these of course. However, Bernanke's speech will be closely watched for any indication of preliminary "market attitude softening" to the withdrawal of monetary stimulus following solid employment growth in recent months. Conversely, the RBA statement will be watched for any signs of assurance to consumers that rates will be left on hold for a while given recent confidence shocks from natural disasters and higher oil prices.
Either or both these developments may provide some insight into interest differentials between Australian and the US
As the chart below shows, these 2 central bank developments will coincide with a testing of trend channel resistance by AUD:USD
One approach to this trend channel, given its height (approximately 675 pips), would be to short AUD:USD on a confirmed test of the resistance. This would occur if there is actually a trend peak at or very close to the trend line resistance.
The initial stop loss could be placed just above the trend peak. This creates the possibility of a substantial pay off ratio on the trade if there is a pull back well into the body of the channel or, even better, a test of the support line on the other side of the channel.
Followers of the Dual Time Frame strategy would be encouraged by the fact that the stochastic oscillator is over bought in both the daily and weekly charts ( see below)