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The Australian Dollar is powering onwards and upwards and once again talk is turning to the word “parity”. When we speak of parity we are referring to the value of the Australian Dollar compared to the US Dollar. The US Dollar has been the stronger of the two currencies for my entire trading lifetime, but the time is coming when that will no longer be the case. The Australian Dollar will first equal the US Dollar in value and then overtake it – for a time.
Chart 1 below shows the current price action of the Australian Dollar Futures contract (AD-Spotv in ProfitSource). Currently, 1 Australian Dollar buys around 90 US cents. This is expressed as 0.9000 on the chart. When the price reaches 1.0000, this is “parity”.
Chart 1.
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In July 2008 the Aussie Dollar last came close to parity with the US Dollar, before falling down to lows around 60 cents – a 40% fall. Since the October 2008 lows, we have seen a strong bullish move in the Aussie Dollar up to it’s current level around 90 cents.
Once again, the talk of “parity” is here, but just like July 2008, I feel there may be a little more downside first before the Aussie Dollar overtakes the US Dollar. I can see some major price resistance coming in at around the 92 cent level. I feel that a fall from these levels back to some support around the 80 cent level would provide a solid base for the little Aussie battler to make another assualt on the 1 dollar level.
WD Gann believed that history repeats and that we should compare current ranges to previous ranges in the market when putting together a price forecast.
Chart 2 below is a monthly bar chart that shows a previous major bull market range on the Aussie Dollar, applied to the October 2008 lows, giving us a price target of 0.9181.
Chart 2.
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Chart 3 below shows the previous monthly swing range as an “AB” range. 75% of this range gives us 0.9184 to watch as a price target, very close to 0.9181.
Chart 3.
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Chart 4 takes the first range out from the October 2008 major low, and applies it to the next major swing low, with the 200% milestone also giving us 0.9181 to watch.
Chart 4.
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And finally, if we apply 200% of the same first major range out to the next major low, as taught in our Interactive Trading Workshops, this gives us a price of 0.9138 to watch, as shown in Chart 5 below.
Chart 5.
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You can see we have a cluster of three resistance levels right around the 0.9180 level and another at 0.9134. Given that the Aussie Dollar is trading around 91 as I write this on Wednesday October 14, 2009, I would certainly not be looking to be long this currency, unless it can break cleanly through 92 and hold.
As I wrote earlier, a retracement down, perhaps to around 0.8000, would be more to my liking before being long the Aussie Dollar again.
Remember, a Price Forecast is just that – a forecast. As always, the swing charts will tell the story, so we need to watch them closely!
Be Prepared!
Mathew Barnes
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