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Where is the Aussie Headed? - a Technical Perspective

By Nilay Guha – Trade with Precision

As is usually the case when things aren’t crystal clear there is a diversity of opinions amongst analysts on the medium term future of the Australian Dollar.  Some analysts have it pointed higher, with a 0.8 figure in the crosshairs if the April highs of 0.78 are retested.  They present their case citing the recent rate cut as having not significantly impacted the recent uptrend being exhibited by the Aussie.  Other analysts are bearish in their outlook, however, an opinion that is driven by weak resource markets.  Let us take a look at the Aussie from a technical perspective to see what our analysis reveals.

Starting with the  daily chart above, the Aussie has been in an uptrend against the US Dollar since the end of May, a fact that can be verified by a quick glance at the daily chart.  We clearly see a series of higher highs and higher lows.  Both the MACD and the RSI are also convergent with the price action lending some credence to the strength of the uptrend as well.  However, I would not exactly call the chart structure as optimal with quite a few large spiky candles denoting extremes of price action and sharp and rapid price rejections.  This is reflected in the Moving Average geometry, which is not ideal, and the Moving Averages are ropy and tangled.  They are not always in the right order and do not have good separation between them.  The pull backs into the Moving Averages have been a bit deeper than what would be considered acceptable and this is evident from the Moving Average geometry as well.  Notwithstanding the contra signals however, a distinct higher low appears to be forming, at the time of writing, boding well for the continuance of the uptrend.

However, as one goes down into the four hour timeframe, one is confronted with clear evidence of a full-fledged downtrend that has been in place since the 10th of August.  In order for the uptrend to resume on the daily we would thus need to see evidence of a reversal of this downtrend.  While not overtly evident, a closer inspection of the last ten candles on the four hour chart provides a slight hint to the beginnings of an uptrend. 

When one drills down a bit deeper and goes into the hourly, this nascent uptrend presents itself with a little more clarity.  We see a higher high and a higher low,  moving averages swinging round in the right order, with the beginnings of good moving average geometry, all supported by strongly convergent indicators, both the MACD and the RSI. 

If the hourly chart develops into a strong uptrend which begins to manifest itself on the 4 hourly, then this points to a likelihood of resumption in the uptrend on the daily.  Such an uptrend could easily result in a retest of the August 10th highs of 0.7757 and an upward momentum for the Aussie.

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