NEW YORK (TheStreet) -- The Aussie dollar is threatening a downside breakout from a nearly one-year trading range. The Royal Bank of Australia recently cut its key interest rate to 2.75 % and cited slowing growth and inflation levels running under target levels.
In my opinion, this is demonstrative of the deflation that the global economy is currently experiencing. In addition to the rate cut, rumors continue to abound of George Soros having a large short position in the currency.
RBA governor Glenn Stevens commented that the Aussie's strength "is unusual, given the decline in export prices and interest rates." It would seem to me that the RBA would like to see the Aussie lower, and I believe the possibility of lower prices is certainly in the cards.
The currency has traded in a range from roughly 101-106 or so since last July. The currency is currently trading at 1.0098 as of this writing. In my opinion, an attempt to breakdown is under way. Also, in beleive the .985 level is an initial downside target with a secondary target around the .960 level. This secondary target level is approximately 1x the previous trading-range size.
There are a few different ways one could position themselves in this market to play some potential downside. One could look to sell rallies here or look to get short on some consecutive closes below the range bottom. One could sell futures, sell calls, buy puts, or do a combination thereof. How one goes about it is a matter of personal preference, risk tolerance and trading style.
Futures and options trading is inherently risky and unsuitable for all investors. Past performance is not necessarily indicative of future results. Stop-loss orders intended to limit losses to certain amounts may not be effective, because market conditions may make it impossible to execute such orders.
Please feel free to contact me to discuss further: MZeman@Kingsview.com
Commodity Futures Trading Commission disclosure for licensed brokers: This material is conveyed as a solicitation for entering into a derivatives transaction.