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Currency futures are traded in massive volumes by participants all around the world for a variety of reasons. While many participants can still be classed as speculators, by the same token there are plenty of situations where a company or individual may wish to hedge currency risk associated with business transactions or investments in another country.
In this article I want to discuss the current price action on the Australian Dollar futures contract. This contract is a forward agreement to make a transaction either from Australian Dollars to US Dollars or US Dollars to Australian Dollars.
So where to next for the Aussie Dollar? Looking at the first chart below we can see the continuous Australian Dollar futures price movement shown as a daily bar chart (AD-Spotv). It is fairly apparent that this chart has been in an uptrend of sorts since the low in March of 2006. You can also see the Elliott Wave 4 Buy currently in motion.
Chart 1 – Australian Dollar Futures Contract Daily Bar Chart
click chart for more detail
It has to be said however, that this is not the best looking Wave 4 Buy trade around. So before we go rushing out to open a futures trading account or jump on our online trading platform, let’s assess the longer-term perspective for the Aussie Dollar. Moving to a monthly chart – shown in Chart 2 below – we now find another Wave 4 Buy trade, this time over a much longer term.
In comparison to the daily set-up, this monthly set-up gives a stronger indication that further bullish movement should lie ahead. Here are some of the key reasons why:
1. Wave 3 formation
The Wave 3 formed on the monthly chart has a cleaner up-trend. The daily chart in comparison whipsaws around during Wave 3, looking much less like a text book Elliott count.
2. Bollinger Band angle
The Wave 4 low tags the lower Bollinger Band, giving us a signal that it may be finished. The key here is the angle of the Bollinger Band as this occurs. Note the Bollinger Band is moving towards the Wave 4 low when the tag occurs. This shows that there is still strong upward momentum.
3. Oscillator pattern
The Oscillator in this set-up comes back close to, but never crosses the zero line. While we do allow for it to cross, in conjunction with the Bollinger Band pattern, the oscillator holding above zero is an extra sign of strength.
Chart 2 – Australian Dollar Futures Contract Monthly Bar Chart
click chart for more detail
4. ADX Strength
Last but not least, the ADX during Wave 3 makes it beyond 40. It is important to remember that not all labelled Wave 3’s will end up being actual Wave 3’s. Checking the ADX made it above 40 helps confirm that the move was strong enough to be considered a Wave 3.
Chart 3 – Australian Dollar Futures Contract Monthly Bar Chart
click chart for more detail
Bringing all this together, we can see that the overall direction of the Australian Dollar over the coming year has a good chance of being up. However, the strength of the current Daily Wave 4 set-up indicates that the Australian Dollar may not be ready to push higher in a strong fashion just yet. Instead a lower Wave 4 may need to be formed on the daily chart.
Watching the movement of other currencies futures like the Euro, Swiss Franc and Pound, along with the continuation of this set-up will provide the best results. Until next time…
Happy Trading
Jordan Craw
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