Australian Dollar Overview. Still Range-bound after Increased Volatility

Sometimes here at Icarus Signals, we manage to get things pretty damn right! It’s not a standard and recurring theme to a significant degree, but enough to ensure that the probabilities and risk/reward ratios push the equity curve in the right direction.

We’ve been closely following the AUD/USD, and reporting on our thesis for forward looking direction since early August. In our most recent article, we made the case for continued consolidation and a return to a key level before any conviction could be applied.

We wrote, As we look at the correlation between VIX and AUD/USD, we expect the rising AUD to come under pressure again, with a return to the previous resistance level of 0.7220, after which a clearer picture will eventuate as other correlations and economic matters prove out.

A broad-based strength in DXY (The USD basket instrument) saw almost all majors sell off heavily against their counterpart in the USD. The AUD/USD was no different, and saw a decline of 190 points, or approx 2.5%.

This saw price retract to PRECISELY 0.7220, being the level outlined in our previous correspondence. For ease of review, price-action is highlighted in yellow.

AUD retests 0.7220
AUD/USD retests 0.7220

The chart above shows the Icarus Oscillator beginning to slowly roll towards a upward trend indication, although as users will realise, this can often be a reliable indicator of ‘failure to extend’ the current direction, rather than a specific turning point. Price action in the coming trading sessions (noting that today is a Public Holiday in the US) will give us some additional insight as to likely direction.

The roll-over from the upper levels, as outlined in earlier articles was marked clearly be a well-defined roll-over of the Icarus Oscillator, which was accompanied by a confirmed Icarus Reversals indicator providing a close below the lower band of the set threshold.

The roll-over from recent highs is marked by the beginning of a new Icarus Oscillator trend, supported by a confirmed Icarus Reversal, with a close below the provided threshold.

As we look to longer time-frames for a clearer picture of direction, we note that there remains a number of elements suggesting that lower prices in AUD/USD are ahead.

The 4Hr chart has shown a clear roll-over of the Icarus Oscillator, after having also cleared the lower confirming thresholds of the earlier Icarus Reversals, which has been marked with a green arrow for easy reference.

The 4Hr Chart suggests continued weakness in AUD/USD, as the Icarus Oscillator and Icarus Reversals both show confirming signals

The Daily chart also shows similar indications, with the Icarus Oscillator having been in a ‘no-direction’ state for several weeks. This, as we have seen in the past, often appears after significant price moves, where distribution is likely to have been occurring.

The Icarus Oscillator has shown a ‘no-direction’ stubborness in recent weeks. This is often followed by a long-term roll-over.

The Daily chart also interestingly shows that the Icarus Reversal lower threshold is firmly placed at 0.7220, which is a key level we’ve outlined in recent articles. This also marks a strong level of supply from months and years past. A strong move below 0.7220, coupled with strength in the DXY and/or continued uptick in VIX will see AUD lower for the foreseeable future.

A longer-term view of the Daily Chart shows the significance of 0.7220 and the Icarus Oscillator’s ability to assist in outlining key zones.
Periods of ‘no-direction’ from the Icarus Oscillator, as per the current situation, often leads to stronger indications of direction upon break-out.

The final element we’ll consider, relative to the AUD/USD position is the VIX. Previously we outlined the inverse correlation between the two instruments was likely to continue, with VIX nudging higher.

We outlined, “Needless to say, in a healthy bull market at its best levels, the VIX should be in the low teens, not the lows 20s as shown in the chart above. In fact, as we showed previously, the correlation between volatility and equities was at the highest since January 2018, just days before the Volmageddon event of Feb 2018”.

With the US market closed for the next session, we’re likely to have to wait for the next full US session for any meaningful market forces to provide suitably reliable insight, but with the recent multi-day sell-off in major indexes occurring amidst very low liquidity, some are suggesting we may be seeing the start of the next serious leg down. The “buy the dip” crowd have managed to rescue the market from almost every decent down-move in recent times, but maybe this time is different.

The SP500 has seen significant sell-off after a massive, unrelenting bull-run.

Chart of the Day

Icarus TV

The Mother of All Tech Bubbles is Bursting – The Big September Sell-off has Started

Share This Post

Leave a Reply