For three weeks the Aussie dollar pressed chart support at 0.866 U.S. dollars and stabilized, and this week is generating follow-through buying. Enhancing the odds of further upside from here is the tall upper shadow (selling into price strength) and small real body (open and close are close to each other) that appeared two weeks ago on the weekly chart. This pattern of behavior often points to seller exhaustion after a downtrend.
Swing Trade
This is a reasonable place for a long swing trade in the Aussie dollar or FXA (CurrencyShares Australian Dollar Trust). Short covering rallies can sometimes be powerful, offering decent reward potential. There isn’t any supply overhang to worry about you get to around 0.921.
Big Picture
But keep in mind there isn’t any evidence that the larger downtrend from the 2011 peak being over. So this isn’t a trade you’d likely want to stay with for a very long time. It’s a reasonable alternative at a time when volatility across the markets is increased, but not a position you can forget about until the end of the year.
Good trading, everyone.
