I don’t know what will eventually turn the tide against the AUD but I strongly believe that this present range trade in AUD/USD will eventually break lower and that we will see levels near 95 cents again very soon.
I’m just reading a report from a major bank that has analysed overall speculative positioning in the AUD and they suggest that the recent hedge fund selling is merely a drip in the ocean as they try to exit longs taken over the last 4-6 months. With real-money players also sitting on stockpiles of AUD, the fall could be very hard if they are forced into selling. Reserve managers and Sovereigns have been consistent buyers but if something happens to make them pull their bids, and force the others into stop-loss selling, then the AUD will fall 7 or 8 big figures in a week.
As we know, timing is everything in the FX market and I’m still grumpy about being stopped out of my EUR/AUD 20 pips from the bottom and immediately preceding an 800 pip rally But I think this is one trade staring us in the face with all information pointing firmly in one direction.
How to trade this? Play the 1.03/1.06 range with a bearish bias, hopefully building a strong position, and if the free-fall begins, shut your eyes and jump on for the ride.