Trade methodologies is a factor not only for current trades but mainly for my own purposes to further understand the deep dark intricacies of exchange rates and the revelations I found within the daily model and never noticed before. As I report trade methodologies, I’m taking detailed notes on many factors not known, seen or understood in currency prices and movements. Few examples include cross pair relationships to USD and Non USD, correlational factors, Technical analysis Gaps, Euro as most transparent currency pair, GBP as best predictor and USD as hardest and least transparent, NZD and AUD as best to hit targets, technical analysis as failures, currency pairs as interest rates, currency pair classifications. Many more detailed notes but overall reason is the journal of Trading or even a top top journal would love to see my information.
Last week currency prices were driven by USD and Non USD pairs and both combinations drove the cross pairs.. NZD/USD for example drove its cross pairs, Friday USD/CAD dragged GBP/CAD higher. This week I see the opposite as cross pairs will drive USD and Non USD pairs. The example is AUD.
What drives AUD/USD, AUD/CHF and AUD/EUR this week is overbought AUD/CAD at the 1.0038 close. Bottoms for AUD/USD, AUD/CHF and AUD/CAD are located at AUD/USD 0.7581, AUD/CHF 0.7357 and AUD/CAD 0.9987. Important to bottoms is AUD pairs hold strong strong supports just below current bottoms.
AUD/USD supports and rising are 0.7541 and 0.7549 AUD/CHF 0.7358 and 0.7344, AUD/CAD 0.9963. AUD/USD will severely struggle at 0.7650’s, AUD/CHF at 0.7420’s and AUD/CAD at 1.0048 and 1.0058.
What I’m looking for this week is AUD/CAD to correct lower to the 0.9960 to 0.9980 area then take longs in AUD/USD, AUD/CHF and AUD/CAD for at least 50 pips in each pair. Hopefully as I see it now, this trade will be a 1 day trade for 150 pips. Only way this forecast changes is if AUD pairs break the lower support points. I don’t see it.
Overall, AUD pair prices are lower to middle range and encouraging for longs but hardly revealing to trends or big moves. We will see more of the same slow price movements on a daily basis. Any drops in AUD is an opportunity. AUD/CAD is the big mover within the AUD framework and why I picked the 3 currency pairs is because all correlate to AUD/USD at + 90%.
Why stay away from AUD/JPY and AUD/NZD is because both hold opposite correlations to AUD/USD at minus 67% and minus 53%. AUD/NZD and AUD/JPY won’t perform as expected if they don’t agree with their underlying currency pairs.
GBP pairs next. Yes to my friend oversold in GBP/USD especially from the 1.5500 brexit drop point. From the current 1.3359 break point GBP/USD as well is oversold and overall encouraging to AUD/USD longs.
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Brian Twomey, Inside the Currency Market, btwomey.com