Over the Asian session, the Chinese Caixin Manufacturing PMI was released and while investors expected manufacturing to remain constant at 50.9, the economy showed some expansion and Purchasing managers are upbeat about the economy. It was this above average data that lifted the AUD in the Asian session and as of now price continues to trend lower. As stated before, the Euro continues to show signs of weakness and further devaluation will continue as manufacturing activity across Major European big weights continue to stagnate as seen from yesterday’s Manufacturing PMI and ECB continues to ease to resuscitate inflation and spur growth.
At the moment, price continues to test the resistance turned support at 1.45, this level acted as a ceiling throughout November and was also a good support from July through to October when price broke below the 1.5 price level. In the daily chart, the stochastics are overbought and after a series of lower lows which began after that long upper wick when market closed last Friday, price has continued to trend lower accompanied by reducing volumes. A look at the monthly chart indicates that price action is trending at resistance trendline of a bear flag. There is an oversold stochastics which could disrupt things but since price reversed at the 50% Fibo of 2008 highs and 2012 lows, price could move lower with the ultimate target being 1.37 and eventually 1.16 lows of 2012.
Trading this pair will be done on one condition, the way today’s candle will close. Any break below support at 1.45 with increasing bear volumes will mean tomorrow we go short with entry in the one hour chart. The trade will be executed as follows:
With an overbought stochastics in this time frame, look to short at these resistance zone
Sell Limit: 1.456
Stop Loss: 1.464-recent highs
Take Profit: 300 pips at 1.426
Have a good trading day.