Wednesday’s ETF Chart To Watch: FXA Potential Reversal Ahead Of Aussie Employment

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The bears resurfaced on Wall Street after Japanese policymakers said there was no need to expand monetary stimulus immediately, which in turn scared away many who are fearful the Fed will soon start to scale back on bond-repurchases at home. On the data front, the NFIB small business sentiment index came in at 94.4, jumping ahead of last month’s reading of 92.1. Our ETF to watch for today is the CurrencyShares Australian Dollar Trust (FXA, A), which will look to pump the breaks on its downfall ahead of the Australian monthly employment report slated for release later this evening. Analysts are expecting for the unemployment rate to tick higher to 5.6% along with a loss of 10,000 jobs [see The Best Dividend ETFs For Every Investment Objective].

Chart Analysis

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Consider FXA’s four-year daily performance chart below. We’re taking a really big-picture approach with this chart because FXA’s recent price action brings into focus a major support level that has come into play several times over the last four years. FXA is currently trading right around the $95 level (red line), which is the same support level that this ETF previously rebounded off in October of 2011 and later again in June of 2012. In each of the previously cited instances, FXA has gone onto stage a steep multi-month rebound after affirming its support above $95 a share [see The Ultimate Guide To Currency ETF Trading].

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Despite the attractive upside potential, we advise conservative investors to wait for FXA to establish definitive support before jumping in long; note that another wave of selling can knock down FXA below $94 a share and welcome accelerating profit taking pressures as stop-losses are triggered [see also How To Swing Trade ETFs].

Outlook

FXA has been in a dismal downtrend since the start of 2013 as the Reserve Bank of Australia had to cut rates to ensure a more robust recovery, which has in turn significantly weakened the Aussie dollar in the forex market. If bullish momentum fails to return here, FXA could encounter further selling pressures that may drag it as low as $90 a share. On the other hand, a string of upbeat Aussie economic data could inspire a rebound; in terms of upside, FXA could encounter profit-taking pressures as it nears resistance around the $98 level. As always, investors of all experience levels are advised to use stop-loss orders and practice disciplined profit-taking techniques.

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Disclosure: No positions at time of writing.

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