The first Tuesday of every month is marked on the calendars of many Australians as the Reserve Bank of Australia’s monthly cash rate pronouncement. This week the RBA left the cash rate at 4.25% and readers with mortgages will be hoping the ‘other banks’ leave their rates alone too!

The Australian Dollar fell slightly after the announcement, losing around one cent to be trading at 1.0360 at time of writing (Tuesday evening, April 3).

In Chart 1 below, we can see that the Australian Dollar (code: FXADUS in ProfitSource trading software) has continued its downward movement from the February 28 high of 1.0856:

Chart 1

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The Australian Dollar has reached the trend-line formed by the October and November, 2011 lows, which is an area you would expect it to hold if there is more upside in the short to medium term. This is shown in Chart 2 below:

Chart 2

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I wrote about the 1.03 level in Trading Tutors three weeks ago, labeling it an important price area for the Dollar to hold if it is has more upside in it. A trend-line alone is not enough for me to trade in any market, but it does tell us to be prepared for a potential change in trend. The best indicator that a trend has definitely changed is the swing chart and the current daily swing chart for the Australian Dollar is illustrated in Chart 3 below:

Chart 3

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Although the downside ranges are beginning to contract (a sign that the downrange is weakening), the trend is still very clearly down. Until the Aussie Dollar begins making higher tops and higher bottoms, long trades will remain risky.

Will the Australian Dollar continue to rise and gain even more against the US Dollar? Or have we seen the end of the current bullish cycle, with a sell off to follow?

Time will tell, but I think we will have the answer by the end of the second quarter. May and June especially will be interesting times. For Safety in the Market Platinum students, I will continue this discussion in April’s Platinum newsletter.

I’d like to wish all our readers a Happy Easter and a prosperous start to Q2, 2012.

Be Prepared!

Mathew Barnes