Why is the Australian Dollar Strong and Can it Continue Higher?

David Rodriguez

- Australian Dollar has rallied to fresh multi-month highs

- Major turn in sentiment warns of further AUD gains

- How might we trade further highs?


Australian Dollar Surges Above Key Resistance, Targets Fresh Highs


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forex_-_why_is_the_australian_dollar_so_strong_body_Picture_5.png, Why is the Australian Dollar Strong and Can it Continue Higher?

Source: FXCM Trading Station Desktop, Prepared by David Rodriguez


After falling for five consecutive months, the Australian Dollar is rallying for one simple reason: there was no one left to sell. In fact, recent CFTC Commitment of Traders data showed that large speculators were near their most short AUDUSD on record.


Australian Dollar Has Further Room to Run Higher as No One left to Sell


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forex_-_why_is_the_australian_dollar_so_strong_body_Picture_6.png, Why is the Australian Dollar Strong and Can it Continue Higher?

Data source: CFTC Commitment of Traders Report


What’s next? We believe that a substantial shift in sentiment warns of a fairly major Australian Dollar bounce off of recent lows. In fact, one of our top forex sentiment-based trading strategies remains long AUDUSD from $0.9031. We’ve seen a substantial swing in forex trader sentiment.


Retail Traders Remained long AUDUSD from $1.03 and have now Flipped to Short

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forex_-_why_is_the_australian_dollar_so_strong_body_Picture_7.png, Why is the Australian Dollar Strong and Can it Continue Higher?

Data source: FXCM Execution Desk Data, Speculative Sentiment Index


What are potential price targets on the potential for the Australian Dollar rally? Our Currency Strategist Ilya Spivak believes that the next major price resistance for the AUDUSD comes in at the $0.9640. That said, the simultaneous breakdown in the Japanese Yen means that the AUDJPY might actually be the more attractive play.


Australian Dollar Near Key 200-day Simple Moving Average versus Japanese Yen

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forex_-_why_is_the_australian_dollar_so_strong_body_Picture_8.png, Why is the Australian Dollar Strong and Can it Continue Higher?

Source: FXCM Trading Station Desktop, Prepared by David Rodriguez


We’ll continue to watch the Australian Dollar versus the US Dollar and Japanese Yen, as we think that this is the start of a larger correction higher. Price levels are fairly well defined, and our sentiment-based Momentum2 system has done well buying into the Aussie Dollar break higher.


Past performance is not indicative of future results, but we believe that positive results in our SSI-based strategies favors playing these systems going forward.


What could invalidate these trades? Put simply: if sentiment turns in the opposite direction, we’ll have little choice but to change our stance.


Follow future updates on the Australian Dollar, our trading strategies, and our Speculative Sentiment Index data via e-mail distribution list.



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forex_-_why_is_the_australian_dollar_so_strong_body_Picture_9.png, Why is the Australian Dollar Strong and Can it Continue Higher?

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--- Written by David Rodriguez, Quantitative Strategist for DailyFX.com


Contact David via

Twitter at http://www.twitter.com/DRodriguezFX




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