Australian Dollar Update

I didn’t expect the downwards gap in my previous analysis and we had a nice descent afterwards, retest and small breach of previous lows at 1.0180. However, we can see on the hourly charts that price bounced neatly from the trendline that is binding those to August lows, and seems to be recovering to the upside. This could be the end of an Elliott Wave 5 and the subsequent projection of the next C wave at a 38.2% retracement on wave 2, brings us to around 1.0360.

Downside targets after a break of yesterday’s lows are 1.0110, 1.0060 and parity (a 138.2% extension of wave 2 swing low) and finally a retest of August lows at 0.9926 and 150% extension.

Price is presently struggling at the SMA100 level (on 30-minute charts we can see an even stronger resistance formed by the confluence of the SMA200 and SMA100), which is also barely above the neckline of an inverted Head and Shoulders formation. If the present level is broken, a 100-pip projection of the head would bring us to around 1.0340 (which is also a point on a steeper descending trendline formed by the highs made on September 8 and 9), and we might go further to 1.0360 for a gap closure and retest of the SMA200.

I think that 1.0360 can be the last bullish station, maybe even we might not surpass 1.0300 (although that gap closure should be a must) if bears come in force, and that from there the Aussie is heading straight to the basement. However the bulls don’t usually give up easily on this pair and this makes for an interesting ride in both directions where everybody can win (or lose) independently of their bias.

I am presently bullish and conservatively targeting 1.0340, but will bail out at any signs of weakness should the present level hold, or at key level 1.0300.