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Chart of the Day Update: Aussie Signal Off S&P Support

Aussie Signal Off S&P Support

S&P futures reversed during the previous session, after a break of 1098 highs. The move down from 1098 to current levels could be a technical correction of an up-trend. On the one hour S&P futures chart below there is a support zone around the 1080-1083 level, from where the global market may bounce higher again.

 TheLFB Charting: S&P 1 Hour Elliott wave view

The 1080 - 1083 area is the 38.2% Fibonacci retracement level of the wave III) distance. This is a typical wave IV) pull-back zone, where traders may start to look for new long trading opportunities in wave V). If the current wave count is correct then the market should break through the 1100 area over the next few sessions, or days for a move into 1120 target zone where the next top could be made.

When the global markets are moving higher traders usually take advantage of the opportunity to earn swap interest in high yielding currencies, such as the Australian or New Zealand dollar against a lower yielding economic region. Buying high yielding currencies, usually against the U.S. dollar or Japanese yen takes advantage of the negative correlation each has with global market interest rates.

The Australian interest rate is 3.50%, while the rate of the U.S. is zero to 0.25%, with the 3.25% difference being the reason why investors will buy the Australian dollar and at the same time sell the U.S. dollar, especially when the global equity market is moving higher, and signaling that risk tolerance is acceptable. 

The effect of such an action is a move higher on Aud/Usd pair; the pair that has already gained more than 3000 pips over the past 12 months. The net result is, that the Australian dollar will benefit the most out of the major currencies from the global market rise.

With this being said, the Aud/Usd pair may be the right pair to trade long, if the S&P futures market does bounce from the 1080 - 1083 area mentioned above.

On the two hour aussie chart below, the market is showing an impulse structure with an extended wave III) in process. An extended wave III) is an impulse wave, so this one also needs to be structured by a five wave move for a valid wave count formation.

Currently we can count three completed waves up in this larger wave III) with a sub-wave iv in process. The solid support zone of a blue wave iv is shown around the 0.9230 – 0.9240 zone, where Aud/Usd may get bought again for a move higher in a blue wave v.

One of the basic Elliott Wave rules is that wave four must not overlap the territory of wave i of an impulse structure. As such, the critical zone of this wave count is shown at 0.9142, which needs to hold for valid wave count, and the potential in the correlation between S&P/Aud to follow through.

 TheLFB Charting: Aussie 2 Hour Elliott wave view

It cannot be forgotten that forex trade is a by-product and consequence of the risk tolerance or risk aversion seen each day in the global market. Forex follows, it does not lead, and by default, if something else has already carved  a path to follow, the currency arena, for those who are educated in forex nuances, really is a whole lot easier than most other markets to participate in. It may actually be the most under-rated traded market there is. Invest in stocks and bond, trade the leveraged products, like forex, and options.

We will signal as the potential in this follows through.

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