Thursday, May 16, 2013

AUDUSD sellers are exhausted, at least for now

You can just imagine how it works: certain traders have not been keeping up with the fundamentals and they are consequently surprised when a currency pair (or an equity, or an index, or a commodity) either takes off into the wild blue yonder or succumbs to a collapse. They watch, awestruck, for a while and eventually decide that, hey, the world must know something that they don’t, so they pile in, regardless. After all, one does not want to be left behind.

So the security in question goes through the roof, or the floor, as the case may be. But only until such time as the followers (the large cohort that sees life only through the rear-view mirror) are exhausted and the market reasserts itself, to bring price back into equilibrium.

We believe that something like this has just happened to the Aussie dollar. We have closed out our position after it moved well into profit (see chart - the small blue dotted line represents the initial profit take-off and the longer dotted line is the profit on the other half of the position).

We did this on the basis that exhaustion, as explained above, has taken place. We have been carrying out research to enable our software to recognise such exhaustion and the outcome of this trade is an example of the results.

Do not get us wrong. We will not be taking a long position in the Aussie anytime soon. We are merely expecting a retrace in an otherwise well established downtrend and have set the Silver Trigger software to take the next short position that conforms to its algorithm.

It will be interesting to see what happens.

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