The March Australian Dollar reversed course overnight and is now in a position to test Thursday’s high at 1.0628. Yesterday the market broke slightly after trading this level, but this was most likely profit-taking rather than fresh shorting.
Technically the market is overbought by some oscillators which is giving a few traders an excuse to pare their existing open long positions. Furthermore, the market is testing the October 27 top at 1.0584. Since this top was made during a tumultuous time period, long traders are respecting the strength of this price level. In addition, big money may be defending this level so it may take a few attempts to finally pierce it.
The current up leg from the October 9 bottom at 1.0065 has been moving up an impressive .004 per day since it was formed. This places the uptrending Gann angle guiding the market at 1.0585 today which squares almost precisely with the old top at 1.0584. You can call it a pivot zone or a resistance cluster depending on which side of the market you are favoring at this time.
If you are a trend trader then you would like to see the market trade on the bullish side of this angle. This would make 1.0585 a key support level. If you have a counter-trend opinion or are looking for a reason to exit some profitable long positions then this is a logical price zone.
One caution that traders should be aware of is the possibility of a correction into the next uptrending Gann angle at 1.0325. You can see from the current chart set up that a failure to regain 1.0585 will make the market vulnerable to a near-term correction. Besides the Gann angle, traders have to be aware of a possible retracement of the current rally from 1.0065 to 1.0628. This zone has been identified as 1.0347 to 1.0280.
On the upside, if the market can breakout above the old top at 1.0584 with conviction then the July 24, 2011 top at 1.0789 will be deemed the next potential upside target. As long as the interest rate differential continues to favor the higher yielding assets, there is no strong reason why the Australian Dollar should lose ground to the U.S. Dollar over the near-term.
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