Please read the full post before considering taking action.
These past couple of weeks have been quite a ride for anyone involved in the forex markets. To an extent, it showcased the necessity of allying our technical analysis with a more proper assessment of the political landscape. While a stable market provides us with reasonably well-determined supply and demand zones for each currency, facilitating our job in forecasting zones of interest, the immediacy of moves caused by governmental agents' announcements sometimes blow it out of the water.
We called for a correction in EURAUD's price on May the 8th, and, while we still hold all those positions open, Trump escalated his trade war with China and triggered a risk-off sentiment in the both the forex and stocks markets. As is well known, a risk-on sentiment favors high yielding currencies, such as the AUD, as key investors seek not only to profit from the currency's natural evaluation, but from the positive rollovers generated by the carry trade.
Australia's election this weekend was, in a sense, a surprise for the markets. The labor party, favored by polls, had an economic agenda that was considered detrimental for the country's currency and the expectation that it would win helped debase AUD's value, in addition to all forementioned reasons. However, the conservatives won and we witnessed a 150 pips gap down by the time retailers could access the price quotes 2 hours before the market opened this Sunday.
The gap started to fill and, even though we are now only 70 pips down from Friday's closing, we believe that a good trade can be found here.
On the charts we see that the upwards channel broke up in a very strong move, forming a sharp ascending wedge that broke with the weekend gap. A morning star candle formed in the middle of the asian session, and the market affirmatively responded to that shift and a pullback upwards happened. That's where we are now. Please note that in 4 hours there is the RBA Meeting Minutes and that tomorrow RBA's Governor Lowe has a scheduled speech. Highly respected analysts, however, believe that the market has already priced in two years of possible rate cuts. Those events, however, are very likely to move the AUD, should investors find the reports hawkish or dovish.
How to Proceed:
Our team is keeping all its positions from the previous call opened, with more scaling orders following the trendlines all the way to the top resistance.
Take Profit:
We are playing waves here as well, but our main targets are 1.58 and 1.57. Those targets, however, can be dynamically changed, i.e., according to live price action, should circumstances vary.
Stop-loss (Invalidation of Analysis):
Our stop-losses here, since swaps are positive, are depending on the RBA's decision to cut rates or not.
Risks Involved and Key Events to Tune Yourselves to:
A resolution on the US-China trade wars would be highly bullish for the AUD. Keeping track of a forex calendar is also of extreme importance here.
Side-notes:
Please keep in mind that the markets have been reacting strongly to news these days, which could further create instability. We are trading the whole forex system here, not only a pair. These positions should be watched closely.
Please leave your comments below to inspire us to continue our work and don't forget to follow us! Feel free to send us a direct message with any doubts you might have and experience a great trading session!
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RBA's Lowe just spoke, and the case for a cut in interest rates has been delayed until June. Even though that's the case, markets reacted strongly against the AUD. We will see how it goes from here.