Tuesday, March 3, 2009

EUR/AUD -- the dance continues

(click image to view full size)

for traders who play breakouts, this chart is a dream. initial downside target of around 1.90 sounds about right. I suppose it could up some too, though I would be more cautious playing the long side.

Australian Dollar bears now must be betting on a crisis with the Current Account. if one hits then yeah, AUD could very well decline somewhat more. but if it doesn't hit soon then the bears should start to back away.

in the newsletter, I think it was five, six weeks ago, I postulated that rather than buying currencies of countries with large trade surpluses - a strategy being hyped at the time in the mainstream press - a better idea would be to buy the currency of a country that has had a relatively large trade deficit with the expectation that as global trade slowed down those deficits would decline, and eventually that would lend support to the currency.

the two examples I gave for that were the Australian Dollar and the US Dollar. While USD has done pretty well since then, AUD hasn't really moved against a basket of the other major currencies.

I'll make a little prediction: one of these two will be the best performing major currency this year. and I think there is a good chance that whichever one does best, the other won't be too far behind in performance. I'm not suggesting exactly that the two will be moving together on a trend basis, but more that the individual trends of each will converge.