Trading the Breaks Ahead of the Reserve Bank of Australia's Rate Decision −−−−− AUD/USD Hourly

Basil Fayadh from eToro USA at 02/01/10

 

Looking at an hourly chart on AUD/USD we wee that the Aussie has been getting consistently weaker since Jan 18th earlier this year. Later tonight we have the Reserve Bank of Australia’s rate decision and statement at 10:30PM EST. The pair has been treading below the 100 hour moving average as considerable resistance over the last few weeks (R1) with the 200 hour moving average and downward trend-line above it (R2). A break through these key resistance levels on the hourly could possibly yield back to .9050 and .9100 respectively with a break there back to the .9275 area where the downtrend began. Remember,when we’re looking to trade the breaks, we can see if the market breaks through and look for a re-touch as a possible entry point into the market. If these resistance levels hold, we could possibly see a move back down for the pair to the .8812 level which was the recent low from yesterday and a break through there that could possibly yield lower levels not seen since October of 2009.
Remember we are not only looking for the actual rate decision, but also to find out if Governor Stevens announces a hawkish or dovish tone towards the RBA decision.


Terms :
Moving Average -Moving averages simply measure the average price or exchange rate of a currency pair over a specific time frame. For example, if we take the closing prices of the last 10 days, add them together and divide the result by 10, we have created a 10-day simple moving average (SMA).
Resistance-
The price level in which a currency pair has difficulty trading above. At resistance, price action tends to stall before breaking above, or reverse in the opposite direction.

In technical analysis, key support/resistance levels are used as buy and sell signals when markets are ranging. Generally, the strength of support & resistance levels are measured by how many times the price reaches a specific level, but fails to break through. Also should a level have been tested a number of times previously, traders will often watch for a breakout to come.

Hawkish-
The term refers to the predatory, stern nature of the hawk. In finance, hawkish refers to a negative outlook on inflation, implying that price levels are too high. "Hawkish" is an adjective typically used to describe monetary policy which favors higher interest rates, tighter monetary controls and restrictive credit policy.


Officials are referred to as being "hawkish" when they emphasize the dangers of inflation rather than focusing on the need for growth. "Hawkish" stands in contrast to "dovish" which emphasizes a more accommodative monetary policy.

Dovish-Dovish refers to an economic outlook which generally supports lower interest rates. Doves take the position that inflationary pressures are low enough for low interest rates to be desirable

'Dovish' is typically used to in the context of describing monetary policy actions and outlooks.

For example, if a central banker were to state that the affects of high agricultural costs are unlikely to be felt in wider inflationary indices, then those comments would tend to be described as 'dovish.'

Dovish is similar to bearish. But where bearish describes a pessimistic outlook for a market or security, dovishness describes an optimistic (low) inflationary outlook.

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Definitions from FX Words

All of the literature in this post is strictly opinion and is in no way supposed to be evaluated as trading advice or recommendations.