Chart Of The Day: Trading The Australian Dollar's Downtrend
Investing.com | Jul 02, 2018 10:01AM ET
The Reserve Bank of Australia (RBA) releases its next interest rate decision early Tuesday morning EDT. The overwhelming majority of economists expect the central bank to hold rates where they are.
That conclusion stems from growing uncertainty about consumer spending as Australia's housing market slows and wage growth has crawled to just about its most sluggish pace ever. All this is also expected to drive a weak increase in inflation. If that's not enough, concerns continue to escalate that the global trade war could further hamper the economy.
In a Reuters poll of 32 economists, 30 predicted that rates will remain the same; only one saw the possibility of a hike. Another predicted that rates will be cut. The RBA last cut rates to 1.50 percent in August 2016, where they currently remain. Expectations are for the central bank to be leaving rates at this level till September 2019.
Naturally, all this has been weighing on the Australian dollar, which has been gradually trending lower.
The Australian dollar has been trading in a falling channel since February, which led the currency, on April 24, to slip below its long-term uptrend line since January 2016. The oversupply retested and confirmed the long-term uptrend line on June 8.
Finally, on June 19, the Aussie completed a double-top (horizontal red line) and crossed below its macro uptrend line since February 2001.
h3 Trading Strategies – Short Position Setup/h3Conservative traders would wait for the price to confirm the downtrend with posting a trough lower than the June 28, 0.7324 low.
Moderate traders may also short upon a pullback toward the channel-top at around the psychological round number of 0.7500.
Aggressive traders may short upon a pullback to the 0.7450 level, the top of consolidation since June 18.
Equity Management
Whatever your risk aversion, enter a trade only after establishing a clear trading plan, including entry and exit that would provide you with a minimum risk-reward ratio of 1:3.
Trade Example:
Entry: 0.7460
Stop-loss: 0.7500 Risk: 40 pips
Target: 0.7340 (June 2017 low) Reward: 120 pips Risk-Reward Ratio: 1:3
Get The News You Want
Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.