There’s a lot of talk about the strength of the Australia Dollar at the moment. On Tuesday, the Reserve Bank surprised many by leaving the Cash Rate at 4.25%. The Australian Dollar promptly rose to $US1.08, less than three cents short of its post-float high of $1.1080, created on July 27, 2011.

This is shown in Chart 1 below. The code is FXADUS, if you would like to follow along in ProfitSource or HUBB Investor software.

Chart 1

click chart for more detail
click to enlarge

David Bowden said that he often saw good news come out at the end of a bull (rising) market and bad news come out at the end of a bear (falling) market. The recent news surrounding the Australian Dollar has been very positive. Last week, Australian Prime Minister Julia Gillard said: “What is certain from all this is our dollar is likely to remain relatively high for years to come.” For those with long memories, this may resonate with Paul Keating’s infamous ‘Banana Republic’ comment.

There are positives and negatives in a strong Australian Dollar and I’m not going to debate those here. As a currency trader, I’m interested in the potential opportunities.

So should we be buying or selling Australian Dollars?

Well, actually neither! Regardless of where the Dollar goes from here, I don’t believe that buying or selling at these levels is a good idea.

The $1.1080 high in July, 2011 was a major high and I believe there is a good chance we are heading for those levels again. If and when we get there, I see one of two things happening:

  1. The Australian Dollar breaks above $1.1080, makes higher swing chart bottoms above $1.1080 and soars to even higher highs. If this is the case, the safer place to buy would be at one of the higher swing bottoms above $1.1080.
  2. The Australian Dollar makes a Triple Top (or even a slightly higher ‘false break’ top) and then plummets. If this is the case, we will have the opportunity to sell Australian Dollars at more than the current $1.08 price levels.

Of course there is also a third, albeit less likely outcome - that the Dollar stay in a trading range around $1.05-$1.10 for the rest of the year. But I would deem that unlikely.

There is the potential to make money from either of the first two outcomes. I’m not currently locked into either direction – up or down – and as a trader I have the luxury of sitting back and waiting for the market to declare itself before hopping on the established trend.

Whichever way it goes, I believe the Australian Dollar will provide some very strong trading opportunities in 2012.

Another market that is setting up for some great trades in 2012 is the Crude Oil market. There are still a few places available at Aaron Lynch’s One Day Oil Forecasting online seminar on 25 February and I strongly recommend you attend. Aaron’s knowledge of this market and his skills in trading it are the finest I’ve seen and a day spent analysing the world’s most heavily traded physical commodity will be well worth your while. These events usually sell out quickly, so call 1800 622 858 today to reserve your place.

Be Prepared!

Mathew Barnes