Second AUD/USD reversal signal hits
Earlier today, Ryan Littlestone made a strong case for an Australian dollar bottom and I have to agree. It might not be a lasting bottom but after a one-way fall to 0.6900 from 0.8100, it's definitely tradable.
I won't even get into the fundamental side because it's a sentiment-driven market at the moment. No one really knows what's going on in China and other emerging markets. Market moves are whippy and the only trend is higher volatility.
Technically is where it gets intriguing.
There are two bullish candlestick patterns.
The first is a classic three-candle reversal. It's a bottoming formation and although it falls just show of closing above the Sept 4 high, it's close enough to get my attention.
The second is the bullish engulfing candle today. AUD/USD fell in sympathy with the kiwi after the RBNZ decision but it later stamped out that decline and shot to a one-week high at 0.7100.
Ryan highlights the broken 2001 support line up at around 0.7125/30 but I don't see much standing in the way of Australian dollar gains until the mid-August low of 0.7213.
Naturally, Chinese stocks will probably write the next chapter but the story in Shanghai so far this week is an ebb in volatility and that's a good thing.
Another positive sign for the Australian dollar is Dr. Copper. Prices are more than 10% from the August lows and the May-Aug low is broken.
Where next for the Australian dollar?
In the bigger picture, a sustained AUD/USD bounce (perhaps on the Fed holding rates) would target somewhere in the 0.74-0.76 range. With the September low at 0.69 and spot just below 0.71, that's a decent risk/reward.
