The Aussie dollar is trading within sight of 84 USc, the British pound has soared to the highest point in more than a quarter of a century, while the Kiwi dollar is around 22 year lows. And the US dollar is close to record lows against a lot of currencies, but mainly the euro. As you have just read these moves are as much about economic fundamentals of growth and the outlook as the impact of the commodities boom on Australia and the influence of the run up in liquidity world wide.
Our occasional chartist, Nick Radge reports:
In the December issue of AIR (#131) I discussed the possibilities of the Australian Dollar breaking higher through $0.78 and travelling onto $0.92. In the same issue it was discussed that, fundamentally, it was unlikely that the currency would break $0.80. Here we in are in April with the battler almost at $0.84 and looking very strong. My target of $0.92 remains unchanged although we could expect some short term weakness before pushing higher.
The chart pattern discussed back in December is an extremely powerful tool and any technician with a basic understanding of chart patterns will know the consequences of an Ascending Triangle. The probability that the target level of $0.92 is extremely high. We know these probabilities from a myriad of prior examples stemming from patterns on almost any tradable instrument and timeframe.
Therefore a monthly chart of the Australian dollar will have the same probability of a daily chart of Westpac (WBC) exhibiting the same pattern. This is not to say that trading such a pattern is infallible, but with such high probabilities of success and an exact point of invalidation, it offers a high risk/reward opportunity. One thing I would be looking for with the currency is a slight dip in the short term. It’s quite usual after this type of pattern breakout that we see prices drift back to that breakout level, in this case circa $0.80. Such an occurrence is of no concern for the bigger picture and indeed offers a level at which to initiate new positions.
