AUD/USD had made a bullish breakout of the double-top at 0.8869 and appears poised for a test of the 200-day moving average.

Positive news out of China continues to boost the Australian dollar. Officials in China today upgraded output growth forecasts to 13% from 11% and said they will act to stimulate consumers in the second half of the year. In all the excitement about the German PMIs and U.S. corporate earnings today, these headlines have been overlooked except in the forex market. This is very good news for Australia as it ships much of its raw material exports to China.

Technically, this chart is now looking outright bullish.

In the short-term we will likely see a retracement close to 0.8869 in a classic ‘buyer’s remorse’ move. Afterwards, however, we expect a quick rally to the 200-day moving average at 0.8967 and eventually to the mid-May high of 0.9077. We can’t rule out a re-test of the cycle high at 0.9420.

The Australian dollar has made three strong pushes to the upside over the past three days after the RBA rate decision and better-than-expected employment data. Short-term signals are flashing some overbought signals but the move higher is generating bullish signals.

We can now see two clear double-bottom formations. One at 0.8062 adn one at 0.8314. In today’s trading we broke above downtrend resistance and AUD/USD is now squarely targetting resistance at 0.8861.

We feel as though we are late to the Australian dollar bullish camp but we can’t fight this chart. Some measure of consolidation is likely in the coming day but we will be eager to buy any weakness with an initial target of 0.8850 followed by a test of 0.9000 or the 200-day moving average.

On hourly charts, we have moved into highly overbought territory and that gives us some optimism that we will imminently see a pullback. On the daily chart, however, the RSI is under 60 and still has a great deal to run before we get into overbought territory.

Concessions from Australia’s government on a proposed mining tax gave a boost to AUD/USD but the moves were short-lasting, something that points to further Australian dollar weakness.

 Mining companies appear to be happy with the watered down legislation and that will contribute to steady investment in the coming years. AUD initially rallied on the reports but fears of a global slowdown appear to be outweighing the kneejerk reaction higher. The chart is also looking bearish.

AUD/USD has fallen from 0.90 to 0.84 over the course of ten sessions, so we are at somewhat oversold levels. We expected  a rebound to 0.86 but even with the good news about the mining tax we got only a rally to 0.8510, not even the 38.2% retracemenet of the down move.

On the short-term chart, we see a downtrend with 0.8509 as resistance followed by 0.8565. With a series of lower highs, we now see 0.8313 as a clear target early next week. Fundamentally and technically AUD/USD is looking bearish — sell any strength.

The Australian dollar rallied on Monday to the highest since May 19, breaking a above resistance and building a convincing double bottom that could point to a 500-pip rally.

AUD/USD took off right from the open of trading on Monday, steadily climbing to a high of 0.8667. It has since pulled back but the close of 0.8587 was above key resistance at 0.8552. The implications are undoubtedly bullish. We have outlined a double bottom formation that targets 0.9046. The measured target coincides with resistance points at 0.9024 and 0.9074. There is also the 200-day moving average to overcome (yellow) it sits at 0.9110 currently.

The first obstacles, however, will the 50-day and 100-day moving averages at 0.8816 and 0.8952 respectively. We don’t expect a clean break to the upside with the stochastics showing highly overbought signals.

Over the next few days we could see some consolidation but barring a sharp move to the downside, we see a gradual decline toward 0.9000.

We feel the Australian dollar has entered a medium-term downtrend and we want to use the strength in the currency late this week to establish a short position.

AUD/USD rallied in a wonderfully uniform fashion for six month starting in May 2009 and ending in November of the same year with a high just above 0.94. Afterwards we moved sideways for a period before the market broke down over the past month.

An initial drop culminated on May 5 before a short retracement phase. This week, we have seen a similar retracement, bouncing from 0.8066 to a high of 0.8555 today – nearly 500 pips. The rebound is precisely 50% of the drop from 0.9028 that began on May 13. It’s no surprise that AUD bounced to the key 50% Fibonacci level.

This gives us a great level to follow the downtrend but with minimal risk. We would initiate a short position on a fall below 0.8429, which is slightly below the 38.2% retracement level. Our stop would be at 0.8670. The initial target is 0.8100 followed by a much deeper fall toward 0.7500.

The Australian dollar is nearing critical support and in danger of falling to an eight-month low. There are signs of oversold conditions as we near support at 0.8578 and a bounce is possible. A sustained break below that level would be very bearish.

We also have to address the euro, given the events of the past 24 hours. We were constructive on the euro’s fortunes heading into yesterday’s session. We saw the potential for a bounce to 1.27 or even 1.31 on extremely oversold conditions. The market was tracking higher for most of yesterday’s session as the market touched 1.2445 but the legs were kicked out from under the euro after Germany banned certain types of short sales. German financial regulators banned naked short sales of exchanged traded euro area debt, credit default swaps and on the shares of 10 financial institutions. In the medium term, this is very bearish and the market closed below our sell line at 1.2330. We will look for levels to enter short positions.

The Australian dollar was beaten up badly on Tuesday and continues to face pressure so far today. Notice how close we are to the 8-month low.

We have fallen very quickly in the past two weeks. After the panic low on May 6, we have rebounded only to trace out a fresh low. That price action is bearish, no doubt.

We have to point out that the RSI is flashing a very oversold signal. In this case, we will ignore that signal if we see a sustained move below the 0.8578. The measured target of the drop would be 0.7754, there is also support at 0.7702.

The Australian dollar fell to an 8-month low today against the Canadian dollar, breaching technical support and breaking out of a 3-cent range. This commodity currency cross is one of the least volatile trades in the forex market because eliminates much of the ‘risk’ trade and allows market participants to focus on the relative strengths of Australia and Canada. Last week, Canada posted the largest one-month gain in jobs in history and that has increased speculation that the Bank of Canada will hike interest rates in June. On May 12, Australia will reveal its April jobs report. The market is expecting  22.5K new jobs. The strength of the report will be a big factor in whether the Reserve Bank of Australia raises interest rates. The market, however, is showing that it expects the Bank of Canada to hike rates more than the RBA in the coming 18 months.

As we can see, the pair carved out a rough range between 0.9178 and 0.9475 (297 pips) since the start of the year. Today, the range broke to the downside after higher-than-expected Chinese CPI cooled optimism for the Asia-Pacific region. Technically, the measured target of the range and breakout is 0.8881, which corresponds very well with the 38.2% Fibonacci retracement of the huge March 2009 to Nov. 2009 rally at 0.8867. Other support includes the July 2009 major low of 0.8796 and the Aug. 2009 low of 0.8983.

Short-term momentum indicators show the pair as oversold. The RSI has fallen to 28.70 and we are beyond the lower reaches of the Bollinger bands. That indicates that the market is potentially oversold in extremely short-term durations. It should be noted, however, that momentum indicators usually flash overbought/oversold signals after a range break.

Beward of tonight’s Austrlian employment report.

The interest rate hike from the Reserve Bank of Australia has led to a solid move higher in AUD/USD today. The rally has broken downtrend resistance that came into force in mid-December and touched of the January and March highs.

The technicals are now bullish and the downtrend should now be support, followed by the shorter-term uptrend and the 200-day moving average. Fundamentally, AUD/USD looks just as good with the RBA sending out hawkish signals. The RBA said: “At this point the market for established dwellings is still characterised by considerable buoyancy”. The comment is a thinly veiled attempt to address worries of a housing bubble. This will continue to remain a concern for the RBA.

Technically, the way is clear until 93.29, which was the January high. After that, a test of the cycle high of 94.02 is possible. It would be no surprise to see AUD rally to parity with the USD in the coming months.

The only fundamental concern we see in the near-term is from China, where officials are nearing a move to hike interest rates or the value of the yuan. Either of these events would trigger a sell-off in AUD.

Ideally, we would like to buy a pullback to 92.40 but there is a risk of missing the move altogether.

Whippy markets can be both profitable and fileld with pitfalls as we have seen over the past week. Extreme volatility in GBP has been a difficult trade that fortunately we were able to profit from before giving a small portion of our gains back.  Still, the highly volatile action in GB and EUR has left us looking for something with a bit more directional bias.

For a low volatility trade, little beats AUD/CAD. These two almost always move in tandem against other currencies but also trade against each other. Lately, AUD is looking tired against the Canadian dollar.

Stochastics are sendign mixed signals but the AUD has now fallen below the 200-day, 100-day and 50-day moving averages as well as tracing out a convincing downtrend since peaking at 99 cents.

This gives us an opportunity to set up a short AUD/CAD trade with a stop at 0.9450 and a target of 0.9000.

Fundamentally, the market is just starting to price in Bank of Canada rate hikes, while having already fully priced in a further 100 basis point hike to 5.00% from the RBA. We feel that if the risk trade falls apart the 100 basis points that have have been priced in from the RBA are vulnerable. Meanwhile, the measley 25 basis points priced in for the BOC won’t have as big of an effect. On the other side, if we continue to see strong global growth, the BOC will inevitable close the 375 basis point spread between central banks.

We have been keeping a close eye on the Australian dollar over the past few weeks and AUD/JPY continues to grab our attention.

Two weeks ago, we warned about the potential for AUD/JPY fall below the 200-day moving average. When it did, it immediately fell 300 more pips before finding support at the quadruple bottom at 76.35-50. It has since rebounded back above the 200 dma to 80 cents.

The move higher has relieved short-term oversold conditions and the overall technical set-up remains bullish for the Australian dollar. We would have a very difficult time going long here, however. A clear quadruple bottom is not something that you see often and it’s usually a sign that a further sustained rally is failing. What has is saying that the chart still looks bullish is the fresh high at 86.50 after the late-November test of 76.50 (a 1000 pip rally).

We don’t want to fight the long-term trend of higher highs in AUD/JPY and we have been impressed by the Australian dollar’s ability to rebound back above the 200 dma. There is no reason to think the AUD can’t go higher in the short-term. At this point, however, we see a rally above 86.50 as unlikely and that will trigger a mixed, or negative technical picture.

We do expect this pair to eventually fall back below the 200 dma and below 76.35. At that point we will be agressive sellers as we could see this pair quickly falling to 67.00.