U.S. markets closed in red territory for another day as investors expressed their concerns over the latest FOMC minutes. Selling pressures took hold of investors on Wall Street as insights from the most recent FOMC meeting revealed that Fed officials were reluctant to support additional quantitative easing measures at the moment; this news effectively shot down much of the optimism building around hopes for further stimulus given the already gloomy economic outlook for much of the developed world [see also What Are Options? The Ultimate Beginner's Guide].
With no major economic data releases today on the home front (aside from weekly jobless claim)s, investors will turn their attention overseas as they react to Australia’s latest employment report. The Rydex Currency Shares Australian Dollar Trust (FXA) could gap in either direction at the opening bell as prices adjust for investors’ overnight reaction to the news. Analysts are expecting for Australia’s unemployment rate to increase to 5.2% from the previous reading of 5.1% [see also 4 ETFs On Fire From The Heat Wave].
FXA is currently trading right around its 200-day moving average (yellow line) which means that price action over the coming days could set the tone for this security over the next several weeks. In fact, FXA is sort of stuck in no man’s land at the moment seeing as how its longer-term range extends between $96 a share and the $108 price level; notice how this ETF has a track record of bouncing off the $96 level as seen on November 23, 2011 and more recently on June 1, 2012. What’s worrisome, however, is that FXA has posted a series of lower-highs and lower-lows since encountering resistance at $108 a share on February 29, 2012; this may suggest that selling pressures are growing stronger as fewer buyers are willing to step in at lower levels.
Conservative investors should hold off from establishing a long position in FXA until it manages to establish definitive support above its 200-day moving average for five or more consecutive trading days depending on individual risk preferences.
If the latest Aussie employment report paints a dismal outlook for the nation’s labor market, selling pressures could create headwinds for the Australian dollar in the currency market. Likewise, FXA may gap lower at Wall Street’s open if the overnight reaction to the news is bearish; in terms of downside, this ETF has minor support at $102 a share while the next level of support comes in at the $100 level. If buying pressures prevail, however, FXA could enjoy a day in the green; in terms of upside, this ETF may encounter resistance as it near the $104 level. As always, investors of all experience levels are advised to use stop-loss orders and practice disciplined profit-taking techniques.
Disclosure: No positions at time of writing.
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