The value of the Aussie dollar to the U.S. dollar has been one of my favorite currency pairs this year (FXA is the Guggenheim Currency Shares Australian Dollar ETF). But position traders should consider taking at least a partial profit here, amid technical conditions signaling an increased probability of sideways or lower price action in the near term.
PRICE ACTION
The drop in AUDUSD overnight confirms a run in May at the April high failed. Anytime price fails to get past a prior high and falls, you have evidence that demand has diminished. Additionally, momentum has diminished substantially. I use averages on the relative strength index to measure momentum (the averages smooth out noise and reduce the number of false signals). The May high in price was pretty close to the April high, but the fast RSI average peaked at a much lower level. Net, this is a market that needs some repair work before it will be an attractive one to buy again. Put another way, after a pretty seamless run higher since the start of the year, AUDUSD is likely due for a period profit taking before the larger uptrend can resume.
KEY LEVELS
AUDUSD would start to look interesting again if it tested the 0.90-0.88 level. The high end of this range is a 50% retracement of the uptrend from January to April and lines up perfectly with turning points in January and February that could act as chart support. The low end of the range denotes the bottom of the congestion in February and March.
