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Still Playing September Australian Dollar From The Long Side

|Includes: CurrencyShares Australian Dollar Trust ETF (FXA)

My last article devoted to the Australian Dollar is located here, and it was written two weeks ago, on Saturday July 6, 2013. In that article I showed a weekly chart of the September Australian Dollar and explained how one can buy on Friday's close each week, even though we usually close lower. The above weekly chart now updates us for trading through Friday, July 19, 2013 (Ignore the last small white candlestick that is the current Globex night session). Prior to the past two weeks, the potential profits by going long on a Friday close, were getting smaller and smaller each time. Counting backwards one could only get out with a 93, 99, 159 and 217 tick profit if one sold at the very high the following week. I predicted in my article that we should finally get a large range up week for the next couple weeks, through the seasonally bullish date of July 26th, and we did indeed do that. After closing at 90.18 on Friday, July 5, 2013, the week of July 8-12, 2013, had a high of 92.63, allowing for a potential profit of 145 ticks. Then after closing on Friday, July 12, 2013 at 90.16 down two ticks for the week, during this past week of July 15-19, 2013, we had a high of 92.53, for a potential profit of 137 ticks. On Friday we closed at 91.57 and again I loaded up and went long. However, I bought late in the session in the last ten minutes and got long as low as 91.40. In the Sunday night Globex trading session I have already profitably liquidated several contracts as we opened lower and have rallied to 91.62 so far, up 5 ticks.

Minimum rally this week of 50 ticks expected, 150 ticks likely

If the most bearish scenario plays out this week, I would expect to see a rally of at least 50 ticks to 92.07, but a more usual rally of 135 to 150 ticks brings us to minor resistance towards 93.00 or slightly above. I would not rule out a rally to 94.00, or even 96.00 over the next couple weeks. The earliest I would want to play the short side would be above 94.00, but shorting 96.00 to 98.00 would be optimal. The Aussie bulls weathered significant event risk over the past couple weeks.

Fundamentals Are Improving For The Aussie Dollar

The Bankers in Australia and the U.S. were dovish enough the last couple weeks to allow the Aussie to rally off its lows. Adding to the short-covering was the news in China on Friday that lending restrictions were eased, allowing for a snap back towards 92.00 on Friday in the Sept. Aussie Dollar futures. Even though we faded much of Friday's gains late, I expected some carry through buying early this week due to the fact the news calendar is light for awhile and China buying euphoria should continue to support the Aussie. Also bullish is the fact that speculators have slightly reduced their extreme short positions in the Aussie dollar. To get the Aussie dollar to retest the lows, more short positions would have to be added, not taken off. We are now heading the other way. The U.S. Dollar has been rising lately as well, along with the U.S. stock market. They should be trading with an inverse relationship. Either the dollar has to correct down, or the stock market indices in the U.S. need to start going south. I suspect it will be the dollar that falls and the Aussie along with the Japanese Yen have the most to benefit if currency traders start taking profits. The Aussie and the Yen show up most frequently on the short side when a trader buys one currency and sells another, in the recent past. If those positions start to get unwound, it could be very interesting!