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Wednesday, November 7, 2012

eur/aud and gbp/aud outlook and technical analysis

Today I want to concentrate on Forex crosses eur/aud and gbp/aud and share with you my expectations about upcoming tendency in the pairs and possible targets. I enjoy trading any security that trends whether it some currency pair, a stock or gold. I like repeating the phrase of Jesse Livermore that ‘big money is in big moves’. More often than not you do not even have to be concerned about your entry level as the tendency pushes the security in the direction of the move quite soon and even if you entered the market at the wrong time you will be in profit sooner rather than later. What you need to think more is your position sizing and where to place your stop. You want to maximize your profits and minimize your risks. This is how you manage to make money even if you were late to jump on the first wagon of an upcoming train. 

Ok. Let us talk now about eur/aud and gbp/aud pairs. If you have been reading my posts you probably know my opinion about trends in various pairs. Do your own analysis and you will see that when some currency is very strong it usually is strong against all the other currencies. Your task is to find out the strongest currency and trade it against the weakest one. As of now, Australian dollar seems to be the strongest. You may notice that Australian dollar was in a downtrend from the middle of August (this year) against Euro and Pound. They performed best against the Aussie. However, you should also remember that those that were the strongest become the weakest when a trend changes and the weakest also become the strongest. 

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As I look at my charts I see that the shift has taken place and aussie is doing very well, especially against European currencies. It is not that powerful against US dollar and Yen as these have also recently been weaklings, but will gain strength pretty soon. Now what makes me think that eur/aud and gbp/aud are going to go sharply down? I have both fundamental and technical reasons for that. Let me start from the technical ones.

If you look at longer term charts you will clearly see that both eur/aud and gbp/aud are in long term downtrends. It means that when you see the pairs rallying up these are corrections, not a significant change in trend. You can also see that both pairs end up lower from previous peaks that were reached during previous rallies against a major aussie up trend. Whenever you see a pair (that has been in a downtrend) doing a rally and approaching to its’ previous rally peak you should follow price action. Is the previous peak going to be reached? In most cases it is not and you can start playing from the short side. 

While being in a counter trend rally a pair usually forms a breakout zone which becomes an entry level for us to play from the short side when that particular pair gets back to its’ main trend again. At some point, while going against a trend a pair experiences sharp reversal days 3-7 days and then continues rallying against a major trend. The area where it stops and continues its rally against the prevailing trend becomes our entry level (if you are a breakout trader). If you look at eur/aud pair you will see that our entry zone for going short is around 1.2325 area. This is the place where the pair continued its’ move against a major trend after some days of retracing. 

You should remember that this is purely technical stuff and this area should not be applied without fundamental stuff. Now, if you do remember my previous posts you know that interest rate decisions are key fundamental events that sets currencies going and major turnarounds happen when those economic events happen. If you look at economic calendar you will see that on the 6th of November BOA (bank of Australia) released its’ interest rate decision. Contrary to expectations of economists and analysts the Bank did not cut interest rates but left them at the same level (3.25), which is very positive for Aussie. And for us currency traders who long Aussie and earn interest on our long positions. 

So, if you look at the chart you will see that at the moment of the release eur/aud was at the very technical level I have already mentioned in the post. The news was released and the pair banged through the level. The same thing happened to gbp/aud pair. I must admit that we have missed some of the move, but you can never catch all of it and should be glad to jump into a move when it is at the strongest. There are some events scheduled that could impact prices for the time being, but in my opinion the direction of the above mentioned pairs is clear – downwards. Tomorrow is a big day: BOE and ECB interest rates decisions. However, having in mind poor results from Europe today and average last week we may assume that ECB will surprise investors. The same will probably be true with BOE. So, my best speculation regarding the direction of the pairs is down. 

I likewise believe that there will be some days when the pairs will try to resist the main trend and start rallying. This will present us with more opportunities to add to our shorts and increase our profits. Unemployment data from Australia later in the day can also impact prices very much. It can also be another opportunity to short the above mentioned pairs again. The biggest events are tomorrow. So, be patient. 

As you may understand tomorrow announcements will have deep impact on other Euro and Pound pairs: eur/jpy, eur/usd, gbp/jpy, gbp/usd, eur/gbp. I am mostly bearish on Euro and looking for eur/usd and eur/jpy to depreciate a lot. However, this is not the topic of the post. 

I believe I will finish now and you will be able to judge for yourselves about my predictions regarding eur/aud and gbp/aud pairs. I expect gbp/aud to go to 1.4800 level and eur/aud 1.1700. If you intend to implement some trades on your own always forget to place a stop loss and let it not be bigger than 2-5 percent of your equity. And do not forget your profits run. Trends do start and they make us investors rich!
Good luck in trading.

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If you want to see and experience what real investing in financial markets such as Forex, stocks and commodities is all about I recommend trying innovative social investment platform of Etoro. Initial deposits are as low as a few hundred bucks. The best dealer I have heard of so far! 

Trading financial markets carries a high level of risk, and may not be suitable for all investors. All information on the blog is of educational nature and cannot be considered as advice, recommendation or signals to trade in any financial markets.