FX Trading 8 January 2019

Technical View

Flash crash on the 3rd of Jan 2019 created a Hammer candlestick pattern, warning of a reversal and a completion of the bearish downtrend that started in Jan of 2018. There was a MACD divergence warning just before this candlestick pattern, warning of a possible price reversal. Stochastic has turned up from its extreme oversold zone as well. All these signs pointed to a reversal of the bearish trend. Price moving below 0.6870 confirmed a Double Top reversal chart pattern’s target attainment, suggesting the end of the downtrend.

A strong candlestick moving above 20EMA confirmed the bullish trend. With the reversal, price should stay above the congestion high of 0.7070. As long as this support is not violated, the bullish trend is intact and price should proceed higher to 0.7400 resistance zone (in green). A price move above 0.7240 would help the bull gain traction for a move towards 0.7400.

Fundamental View

Federal Reserve chief Powell assured the market that the US central bank will be patient with interest rate hike in the wake of a strong US Non-Farm Payroll data. A slower pace of US rate hike will not be in US$ interest as the buck had strengthened in 2018 on the back of 4 interest rate hikes and expectations of more hikes. 2019 could be the year to scale back these expectations and readjust US$ strength.

Aussie dollar had weakened in the previous year on worries of a trade war between US and China and its consequences on the Chinese economy. Trade talk over the past 2 days between US and China seems to be heading towards a satisfactory conclusion between both countries. Wibur Ross, US Commerce Secretary had predicted on Monday that Beijing and Washington could reach a trade deal that “we can live with”. Aussie dollar could find respite if a reasonable settlement between the 2 largest economies in the world could be reached.

Strategy

We are recommending a buy AUD/USD at 0.7080 for a rally to 0.7390 with a stop at 0.6890. Expected trade duration is about 3 months.


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