BarroMetrics Views:
Since most of the readers follow the ES, why am I writing about the AUDUSD?
The reason is there is a direct correlation between the AUDUSD and the S&P. Indeed vis-a-vis the other currencies, the AUDUSD, at the moment, is exhibiting one of the strongest correlations for end of day data.
Figure 1 shows the 12-month swings (yearly trend) since Federation. The swing up from low at 0.4775 in April 2001 was the first time prior swing highs were exceeded. Since the high at July 2008 at .9848. the AUD has retreated into the previous congestion level. Normally we can interpret this return to congestion, in one of two ways:
- A larger time frame downtrend has resumed or
- A congestion zone is forming between .4775 and .9845.
I have problems with either interpretation:
- The price action from the .9858 high does not support the first interpretation. If the downtrend were resuming, the penetration of the bottom of Value at .6455 (Figure 2) should have seen a move to at least the 21.4% zone. This the market did not do. It has now closed above the bottom of value. This projects a target to the .8136 to 7909 area.
- This leaves us with a congestion scenario. Given that the market failed to get to the 21.4% retracement area, it is unlikely that the active zone will be marked by 0.9850 to 0.4775. For the moment I’d say the likely zones are .9845 t0 .4775 and more probably the .8136-7909 high to .6005 (21.4%) low. In any event both sets (.9850 to .4775, and .8136 to .6005) need to be confirmed.
That’s the context for the 18-day swings (monthly trend). Tomorrow, I’ll review that picture and conclude.
Figure 1 12-M AUDUSD 1914 to 2009
(Chart courtesy of TheChartStore)
Figure 2 12-M AUDUSD
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