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Short-term Trading Idea FX AUD/USD – Bear Speculation: Expected Fall in the Rate to Lower Limit of Expanding Formation

Trading opportunities on currency pair: due to the falling price of iron ore and weak stats from Australia and China, the Australian dollar is really under pressure. It is believed the new week will bring a fall in the Aussie to the 0.7380 lower limit of the expanding formation. If it passes this level, it will move lower towards 0.7280. A break in the trend (H0.8162-H0.7847) will cancel out a scenario for its fall.

On Friday the Australian dollar fell throughout the market. Due to this, the 25th May, 2015 target of 0.7532 was reached. The sellers managed to break the lower limit of the 0.7532-0.7625 range and strengthen beneath the 0.7532 minimum from 2nd April. By doing this the sellers opened the road up to 0.7380. If the fall in the AUD/USD hastens next week, the target will shift to 0.7280.

The Australian dollar did a U-turn downwards on Wednesday due to a growth in the dollar and a fall in the price of iron ore, The cost of iron ore in China fell from Monday to Friday by 11% to 55.26 dollars per ton. This is the biggest weekly fall since April, according to Bloomberg.

In June the export deliveries of iron ore sent from Port Headland in Australia reached a maximum. Information about the growth in export volumes had a negative effect on the price of iron ore and the Australian dollar.

In China the decline in the steel industry is gathering pace. Demand for the metal is down. Goldman Sachs believes that the prices of iron ore will again fall below 50 dollars a ton. The cost of iron ore dropped to a 10-year minimum of 47.08 a ton on 2nd April this year.

On Friday the pressure on the AUD/USD came from weak retail sales growth in Australia. In May, retail sales increased by only 0.3% although they were expected to rise by 0.5%. The sales indicator for April was reassessed downwards to -0.1%, whilst they had initially said that it would be unchanged.

The fall in the Australian currency was also affected by the HSBC’s business activity index for China’s service industry. In June the index was 51.8 points against a previous of 53.5 and forecasted 53.8. China is Australia’s main trading partner, so any negative news from China has a real effect on the Australian dollar.

This week’s key event for the Aussie is the RBA giving an announcement. Other than the meeting, on Tuesday a May credit report for the private sector will be out, on Thursday some data on May external trade will be released and on Friday we will get to have a look at retail sales figures for May.

Have a look at my last idea from 29th June. The AUD/USD didn’t break the lower limit of the channel from a 0.7597 minimum immediately. Preliminarily, the rate is looking to return to 0.7737. From there the dollar will start its rally.

It’s really important how the market opens after the Greek referendum. For the moment I’m proposing that the Aussie is to fall to the 0.7380 lower limit of the expanding formation.

So what to expect if the rate drops lower? Firstly, look at the other pairs with the Australian dollar. The fall should stop on all pairs. Secondly, one can take the wave from 0.8162 to 0.7597 and stick it to a maximum of 0.7847. As a result we get a new target of 0.7280 (rounded up).

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