The Australian dollar has benefited from both a commodity rally and delayed expectations for the Federal Reserve to raise rates. Another positive catalyst for the currency is that the Chinese stock market is improving. However, if growth returns to a slower pace in China, the Australian currency could remain heavy and we could see fresh 2015 lows.
Price action on the AUD/USD daily chart shows that the current rally that started from a dogi candlestick on September 29th. The current eight day rally appears poised to make a run towards the 100-day SMA, which currently trades at the .7372 level. Further upside may find major resistance just ahead of the psychological .7500 handle. It is around that area that we could see price form a bearish Gartley pattern. Point D is targeted with the 161.8% Fibonacci expansion level of the B to C leg and the 61.8% Fibonacci retracement level of the X to A drop. If valid, we could see price reverse back towards the .7300 region.
If the bullish rally ends, critical support will come from the .7170 area. Only consecutive daily closes below that area could open the door for another run towards the .6950 level.
The trade: Buy AUD/USD at .7300, with a stop loss at .7241 and take profit at .7475. The risk/reward ratio is 1:3
Edward J. Moya
Senior Market Strategist
WorldWideMarkets Online Trading