Technical Tools

Support and resistance (S/R). Price levels, trendlines and Fibonacci retracements. Price action, candlestick and chart patterns. Simple moving averages (SMA). Commitments of traders (COT) indicator, which displays speculative positioning in FX futures market, used as a proxy for speculative positioning in spot FX market.

Weekly Chart


January - April rally topped out near the intersection of 38.2% retracement of 2014 - 2016 downswing and 2011 - 2016 support/resistance line. The pair sold off to the long-term trendline, drawn off of 2001, 2008 and 2015 lows, in May and then rose back towards the support/resistance line through June - August period.

Speculative Positioning

Speculators in the Australian Dollar futures market have been net long the currency for the most of the past six months. The position topped in April at 59.5K, which was the highest since September 2014. It currently sits at just 6.8K, due to both bulls exiting and bears entering.

Daily Chart


After the Brexit shock, the pair found demand just above 0.73, ahead of 200 day SMA and May bottoming pattern. More recently, the pair has been able to hold above 100 DMA after it spend few day below the 0.75 level. The latter remains a bull/bear line in sand to watch.

Fundamentals

Continued low inflation and subdued growth in labour costs prompted the RBA to cut the cash rate to a new record low (1.50%) in August, though relatively high yield and AAA rating make the Australian dollar still attractive. The Fed are in the middle of a tightening cycle but are not likely to act before December.

Prediction

Taking into account all the above-mentioned factors, I expect the pair to be trading near 0.7725 towards the end of the forecast period which will conclude on the 1st of November, 2016, at 12:00 GMT. Ideally, the pair will follow the expected price path as outlined on the charts.
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