Alright, I have posted a chart in a while so here is an updated COT chart that I produced using Excel. I will probably be the first to say it is quite congested but it has some important points that I would like to note.
1. Range from 0.5968 to 0.7635 commenced from 23/12/2008. 2. The weekly price closed above this range on 12/05/2009 - I went long (very long term trade) with stop loss at 25% of this range i.e. 417 pips @ 0.7218. Target was 5x SL pips i.e. 2085 pips to 0.9720. 3. New range commenced on 14/12/2010 from 0.9477 to 1.0067 representing 590 pips.
Now, here is where it gets interesting. Basically, we are in a range trade between this "support" and "resistance" line and if the price closes above the range, I will be initiating a long position (long term) with the adjusted SL and TP.
However, if a short position were to occur i.e. a close below 0.9477, one can expect a significant fall (based on the average volatility, it will probably be 4x the SL pips which for simplicity will be 25% of the range again
SL pips = 148 pips TP pips = 4x 148 = 592 pips down to 0.8885 (=0.9477-592)
Will this happen? Let's look at some sentiment signals given by the Commitment of Traders (COT)
The 2nd lowest row on the chart refers to the Relative Net Position of the Hedgers, Speculators and Small Traders. Think of the Relative Net Position as a stochastic indicator of the Net Position (Long - Short positions). Note that the hedgers have a very bearish view of the AUD for the last 3 weeks with a below 5% signal.
I think this is a sign that the AUD will be under pressure for 2011. I will remain bullish (following the trend in price) above 0.9477 but it seems like a drop below this level will be impulsive so I will suggest being cautious with the trades.
SUMMARY: AUD is still in a bullish stance above 0.9477 but a drop below this will signal accelerated selling down to 0.8500 (50% fibonacci retracement). I surely will have a trade target to 0.8885 if this happens.
AUD Price at posting:
0.0¢ Sentiment: None Disclosure: Not Held
