Wednesday, October 23, 2013

The Aussie takes an out-of-sequence tumble

The Australian dollar against the US dollar (AUDUSD) or Aussie, took quite a tumble overnight (GMT). The lower than expected US Non Farm Payrolls report had given the pair a further boost, to enhance the growth is has shown since after the Australian Federal elections.

The given reason for this drop is that Chinese banks have increased their levels of write-offs three-fold, and anything that bodes ill for the Chinese economy is also perceived to be bad for Australia and, consequently, its currency. To complicate matters, Australian inflation figures, releases yesterday, show a larger-than expected rise, which would be expected to encourage the Reserve Bank (RBA) to raise the cash rate, thereby tending to increase the value of the Aussie, rather than reduce it.

Could the reason for the drop be more technical than fundamental? As pointed out here, the Aussie has started to joust with the 200 period Simple Moving Average (SMA) on the daily chart. There is also a significant resistance level at 0.97400.

The 200 Day SMA is an indicator that is watched by a great many traders. All of this might tell us a lot about how price action can be expected to play out when technical analysis becomes a mover:

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