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Noel Campbell Our dollar has experienced a fantastic run up over the past few months. Regular Trading Tutor Newsletter readers would recall that I wrote an article calling the Aussie dollar up when it was trading around 0.6800, since that time the currency has risen over 0.1000, which on the future markets represent 1000 points. For currency futures as a general rule, the minimum movement is 0.0001. For the Aussie dollar contract the value of one point or tick is US$10. The basic chart to study for this contract is the AD-SpotV.
The contract is now again at a crucial point on our charts and I have some interesting analysis to share. I can’t emphasise how important it is to get back to your swing charts to trade any potential set-up, as that is our ‘rock’ for safe entry and exit into the market. Chart 1 shows the first part of a potential set-up focusing on pressure points using a double bottom.
Chart 1
click chart for more detail
The first low is 0.6730, which occurred in June 2004 and the second low is 0.6793 in September 2004. The highest point between the two lows is the 0.7304. Using the range from the first low to the top gives us a reference range of 574 points. Adding 200% of the range to the second low gives us a price target of 0.7941 (0.6793 + 2 x 0.0574). The market has just recently topped at 0.7938, so it’s no surprise to see a sell off from this level. The concern is whether this is a ‘dead cat’ sell off or the start of the real deal.
Chart 2 takes in the bigger picture where we see the 0.7938 top is actually part of a bigger double top.
Chart 2
click chart for more detail
The market topped in February this year at 0.7980 and with this recent November top coming in at 0.7938 we clearly have double top, particular with the significant time period between the tops. Some subtle points to note about this potential set-up is that the market has pulled up just short of the first 200% target and the second of the tops is lower than the first, when we consider the bigger picture double top. This can all be taken as subtle signs of weakness and favour the double top scenario.
The current ‘spot’ contract for the Aussie Dollar is December, but this contract will expire soon. This would make it worthwhile to study the swing chart of the March contract, to avoid concerns over the contract expiry, as currency futures are deliverable. The Aussie dollar contract in focus here is traded on the Chicago Mercantile Exchange (CME) and is the combined night and day sessions. If the potential of this set-up is to be realised, we have far from missed the boat. Remember to safely trade your swing chart, use your stops and observe your money management rules.
Until next week......
Noel Campbell
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