Forex Trading Update: AUD/USD

As many of you know, I recently tweeted about what I believe to be a large automated seller(s) that sold the AUD/USD repeatedly as it popped above 1.0315 over an 8 hour period. (9PM-5AM EST 10/23-10/24). I was trading the GBP/AUD on 10/16 when I noticed very similar price action (8AM-3PM EST). At that point, GBP/AUD was putting in a swing high at 1.5700 and promptly fell 250 pips over the next 2 days.

Now, I can reasonably conclude that if a seller is using an automated system for a series of orders that has a large impact on price action they won't be playing for 10 pips and they are fairly confident in the direction of their position. As to their stop loss, I somehow doubt that a large seller that has taken 8 hours to accumulate a position will be exiting because it has risen by 50 pips. It could rise 200 pips and they could still stay in the trade. I'm guessing that their target is well below parity. For some reason, whatever reason, their models and algorithms told them the place to sell was 1.0315. I definitely want to be on the same side as what I believe to be a very large player; but I'll wait for this move up to wane, consolidate, and start to fall before I get short.

Why is the Aussie currently so strong? There are 3 main factors that influence the Aussie:

1. Australian Economic data: (CPI, unemployment, housing, etc.)

2. The economic situation in China: this affects expectations about demand for Australian exports which are mainly used as inputs in manufacturing and industrial production in China.

3. Risk appetite: the degree to which institutional traders and investors are willing to take risk. In a "risk on" scenerio, traders are will to accept a higher degree of risk in return for higher yields. High yielding bonds, stocks, and currencies are the primary beneficiaries. (i.e. low grade corporate bonds, the S&P 500 index, Aussie & Kiwi dollar, etc.)

Since the beats on Aussie CPI numbers last night (Actual 1.4%, Expected 0.9%, Previous 0.5%) and the Chinese HSBC Flash Manufacturing PMI (Actual 49.1, Previous 47.9) the Aussie has rallied from the 1.0250 area. Its closes were held above the .618 fib (daily chart, low on 10/8 to high on 10/18.) The Aussie is currently trading at 1.0350, but despite this rally we really have to see an increase in risk appetite to support an Aussie uptrend. It can happen, but I prefer playing this pair to the downside after a period of consolidation.

Note: I consider the FOMC minutes due out later today to be a wild card which could cause a large move in either direction.

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