The Aussie rebounded as we had expected in our July 25th article, netting us a little over 300 pips as we closed our long on Wednesday last week when a reversal signal, a bearish pin bar, emerged on Tuesday close. Indeed, last week’s candle closed with a bearish inverted hammer, a sell signal for candlestick pattern trader. The question is at what level is this signal will be invalidated, hence our stop loss, and if so right, at what level should we exit the trade considering we expect the pair to be range bound?
One mentality a retail trader must embrace in order to be successful in trading is to always think about the exit first – the stop loss and the take profit – before contemplating about entering the market. Always know your risk and reward - whether the reward is worth the risk – beforehand and stick to your plan. Also know your time stop – when to stop the trade – as trading with a daily candle for example, two to three weeks is a reasonable time to expect your trade to reach the target. Knowing your price and time stop is the first milestone towards becoming a successful trader.
It is interesting to note that despite the fact that RBA reduce its cash rate by 25 basis points to 1.5% - the lowest in Australian history – earlier this month, the Aussie Dollar exchange rate continue to rise in response to the demand in gold and higher yielding currency. Policymakers’ decided to ease monetary policy, in an attempt to fight low inflation, as annual inflation fell to just 1% in the second quarter – the lowest in 17 years. The RBA minutes released two weeks later showed that:
“The latest CPI data for Australia had confirmed that inflation pressures were subdued, as had been expected when the previous forecasts were discussed in May. As such, the outlook for underlying inflation was little changed. Underlying inflation was expected to remain low for a time before picking up gradually as spare capacity in labour and many product markets diminished.
The outlook for Australian GDP growth and the unemployment rate had also been little changed since May. While GDP growth had been stronger than expected in the March quarter, reflecting unanticipated strength in resource export volumes, it was expected to have been more modest in the June quarter. Economic growth was expected to pick up to be above estimates of potential by mid 2017.
In coming to their policy decision, members noted that the recent CPI data had confirmed that inflation was likely to remain low for some time. They also observed that while prospects for growth were positive, there was room for stronger growth, which could be assisted by lower interest rates.”
Over to the United States, the latest Feds minutes showed that the number of regional Federal Reserve banks convinced of a rate hike increased to 8 compared to 6 back in June, thus showing confidence among Feds policymakers in economic outlook of the world's largest economy.
This week’s Jackson Hole Symposium will set the stage for Feds Chair Janet Yellen to signal a move in September that could spark Dollar rally, otherwise failure to send such a strong message would see greenback lost its appeal. 30 days Feds fund futures only implies a 21% probability of a hike next month.
On the futures market, recent CoT reports indicated and market players were net long in all currencies against Dollar, except Pound, Swissy, Loonie and Kiwi. Aussie net longs increased by 6,200 contracts to +41,100 contracts.
On the institutional front, ANZ bank targets Aussie to top at 78 cents by end of September, before gradually reversing lower. Halal Traders continue to play the 7850 - 7150 range band.
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