Friday, August 9, 2013

Wait for it, wait for it...

Fundamentally, there is no reason to believe that the Aussie dollar [AUD] is about to come out of its dominant downtrend any time soon. The latest statement from the Reserve Bank of Australia (RBA) says that it has revised downward its estimate for Australian Gross Domestic Product (GDP) for 2013, to 2.25% from 2.5%.

The RBA is also concerned about the decline in the mining economy in Australia, to the extent that it expects the non-mining sector to make up an expected shortfall. One thing that would allow this to happen is depreciation in the currency. The bank is quite explicit about this, saying that “a 10% depreciation in the exchange rate could stimulate growth by half to one cent over two years or so”.

One criterion that the bank has for cutting interest rates, the so-called cash rate, which would have the effect of lowering the value of the dollar, is that inflation should be between two and three percent. At the moment it is running at 2%

Technically, AUDUSD is in a retrace from its downward trend but there is a significant line of resistance to this, at 0.94038 (see monthly chart above). The high probability trade would be to catch a resumption of the downtrend as the exchange rate approaches this level.

We are out of the market at present but we have set the Omicron Forex Silver Trigger algorithmic routine to enter the market, but only to the downside, when it gets the momentum signal that can trigger a trade.

Now all we can do is wait.

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