The Australian Dollar has fallen sharply off of its $1.0610 peak seen through August, but does the 400+ pip decline offer a buying opportunity?
The DailyFX Argument for Australian Dollar Short Positions:
- Overnight economic data shows the Australian economy failed to accelerate, pointing to downside risks for the Australian Dollar itself.
- Our weekly trading forecast shows Australian Dollar is at clear risk as futures positioning remains extremely one-sided
- Australian Dollar may have topped amidst clear market complacency
The DailyFX Argument for Australian Dollar Long Positions:
- The Reserve Bank of Australia boosted the AUDUSD as it kept interest rates unchanged, giving hope that the Aussie currency would maintain its substantial interest rate advantage versus major counterparts.
- Highly-correlated Gold and Silver prices have broken key technical resistance, offering AUD support.
- Key Fibonacci support may offer an important AUD price floor at $1.0100
Substantial Australian Dollar declines offer an attractive price at which to get long, but traders should be careful of clear fundamental risks to the AUDUSD currency.
Proprietary Speculative Sentiment Index data likewise shows that the vast majority of retail traders have gotten long the AUDUSD amidst one-sided price moves. There are currently 2.2 traders long Aussie Dollar for every one that is short—a level that has historically coincided with further AUDUSD weakness.
Reward/risk on AUDUSD longs looks attractive, but we can’t advocate joining the retail trading crowd in getting long the fast-falling Australian Dollar.
--- Written by David Rodriguez, Quantitative Strategist for DailyFX.com
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