When the RBA cut OCR August 15 to 1.5 from 2.0, AUD/USD traveled 250 pips from low 0.7500’s to reach 0.7757 within the month of August. Why the rise is explained by the negative 29% Correlation AUD/USD shared V OCR and Negative 29% Correlation to OCR’s counterpart in Overnight Indexed Swaps. Current 0.7500 AUD/USD price is located at the point of the August 16 announcement by the RBA. What changed.
After 1 month, Correlations normalized not only perfectly but AUD/USD and OCR on a 1 year basis share an up-slope trend line. The trend line reveals not only an extremely low AUD/USD price but massive supports exist at 0.7474, 0.7468, 0.7455, 0.7442, 0.7422. Supports are further reinforced not only by the trend line but OCR is low and severely oversold in monthly average terms.
The current base in AUD/USD is built upon 0.7191 and to move higher, AUD must break 0.7570. Along the way breaks must occur at 0.7544, 0.7553, 0.7557, 0.7563, 0.7567. The best target AUD can achieve today on a break of 0.7670 is 0.7580.
Today, the bottom is located at 0.7499. The big line break for AUD is found at a longer term trend line at today’s and overall dropping line at 0.7538. This level determines AUD direction over coming days.
What direction means is AUD’s uptrend begins at a break higher of 0.7591 and a point to see AUD/USD easily rise to middle 0.7600’s before overbought consideration.
A break below 0.7538 could see lower 0.7400’s before oversold factors to the price. The current strategy longer term regards the resolution of 0.7538. Short term and for the day long from the bottoms. For interested, trend line data is on my newly redesigned site.
Brian Twomey, Inside the Currency Market, btwomey.com