AUD/USD Monthly Technical Analysis for March 2014

The AUD/USD posted an inside range in February indicating impending volatility. After closing near the low in January, the market opened steady and never looked back. The Reserve Bank of Australia’s decision to refrain from additional interest rate cuts gave shorts an excuse to cover positions and aggressive speculators a reason to buy.

Despite the rally in February, investors are still concerned about economic growth. Inflation isn’t quite where it should be and unemployment fell unexpectedly. This coupled with turmoil in China could pressure the Forex pair once again if Chinese manufacturing shows signs of further weakening.

Furthermore, the Aussie benefitted from the “risk on” scenario in global equity markets. If the crisis in Ukraine escalates to a military skirmish with Russia then equity markets could break sharply as investors pare positions and head to the safety of the U.S. Dollar and Japanese Yen. This could trigger a sell-off in the AUD/USD.

The Aussie opens the month on the weak side of an uptrending angle at .8987. Overtaking this angle could drive the market into a steep downtrending angle from the .9756 top at .8956. Since the main trend is down on the monthly chart, sellers are likely to come in on a test of this angle. The tone of the market this month will be determined by how investors react to .8987. Sustaining a move over this angle could be bullish for the Aussie.

The main range is .8067 to 1.1080. The Fibonacci level created by this range is .9218. If there is a rally, gains will be limited by this price.

A failure to overcome .8987 will be a sign the selling is greater than the buying while a failure to take out .8956 will indicate sellers are getting aggressive and confident about playing the short-side.

If a bearish tone develops then look for traders to go after stops under .8729 and .8659. It will be a stretch this month, but the next potential downside target is an angle from the .8067 bottom at .8527 in March.