The focus of the day was the RBA rate announcement and while rates remained unchanged, they remained positive about the general economic conditions especially when it comes to matters employment and price stability. Well, it is no secret especially for a commodity dependent country with a positive yield on the exchange to be wary of its own currency appreciation. According to the RBA, they were in no hurry to move in lockstep and raise rates as other central bankers since anyway, they did not ease too much in the face of global slowdown over the last 3 years. An expensive currency would definitely depress inflation towards or even below than the current 2% level due to reduced economic activity. This definitely means that the carry trades which was fueling the Aussie rally is now tightening things up and should US economic data be below expectation, the rally should continue with a neutral stance taken by the central bank. In other news today, we saw that strong UK Manufacturing PMI printing higher than expected and this was accompanied by stronger job readings as the economy expanded. It should be noted that the Pound is at this year’s highs and testing a 4 year resistance trend line. All in all, I remain confident that a natural correction below 1.3 is on the cards. I will be looking forward to Personal Expenditure and Income data from the US where some positivity is expected. I will look to short the Pound and aim for some 100 pips before super Thursday.
So, because of technical formations and with the Pound testing that long term resistance trend-line in the weekly chart, I’m a USD bull at least temporarily. A break above 1.33 and above the resistance trend line will nullify this recommendation. As you can see, there is a sell signal with a double bar reversal pattern and a sell signal printed in the 4HR chart. A bear divergence in the weekly chart means a reduction in bullish momentum and a correction is likely underway.
I will therefore trade as follows in the 4HR frame:
Stop Loss: 1.3270
Take Profit: 1.3050
Have a good trading day.