Day one: our AUD/USD trade

Potential trade idea: buy AUD/USD at 0.9100, with a stop loss at 0.9040, and a potential profit target of 0.9220.

The trend is lower in the pair, and while the MACDs are firmly below zero and the RSIs are still weak, I feel AUD/USD could be due a short covering rally this week. A look at the daily candle sticks shows indecision on Friday and I am looking for follow-through buying.

My target of 0.9220 is set just shy of the August 19 pivot high, but also the 23.6% retracement of the October sell-off, while my stop loss is just under last week’s low.

Fundamentally I think the pair can squeeze higher, premised more on the AUD side of the equation. This week the RBA meets, and while no one expects too much, a more neutral stance driven by the recent fall in the AUD could cause a bout of short covering in the pair. The latest read on retail sales, current account, Q3 GDP and trade balance are also seen, while on Friday the Australian Treasury will look to issue $1.5 billion in five-year bonds - the biggest issue in two decades. Strong demand here could see further buying in the AUD.

The risks to the trade clearly come from the raft of US data out this week, with all the key tier-one releases due out. This week we get the latest read on manufacturing, ADP private sector payrolls, services ISM, revised Q3 GDP and of course Friday’s US non-farm payrolls.

The payrolls number especially will be key and the market is looking for 183,000 jobs to be created (range 205,000 to 125,000). A number above consensus will surely increase the probability of a December tapering announcement from the Fed and thus could see bond yields spike, putting upside in the USD as a consequence. A number below consensus will push AUD/USD towards my target.


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