The FX markets have been more than choppy these past 2 months. The surge of the US Dollar across the board is still valid with the global retracement of commodities and tangible asset prices.

Yesterday was a particular day as the decision made by the US government to fully finance and support Fannie Mae and Freddie Mac has been a bullish decision for the equity markets that soared impressively worldwide.

At the same time, the currencies attempted to bounce back the same way against the Greenback, which generated a gap at the open (which is rare on the FX markets). You can see this gap on the chart (in the blue ellipse). Last Friday the AUD/USD closed at 0.8163 when it opened yesterday morning at 0.8321!!

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However the daily trend changed radically when PPI data was released more dovish than expected in the UK. As a result, traders bought back the US Dollar massively. The AUD/USD eventually closed at 0.8155 yesterday (it’s not a real close as the FX market is running 24 hours a day but it’s the close of the Australian trading time zone). What does this mean? Well, it means obviously that the market is really nervous, therefore potentially highly volatile.

Big moves during the next weeks are then expected. Many economic data and statistics are to be published in the US this coming Friday. It should give a better idea of the future price action. Indeed, traders and investors don’t trust the Dollar, but they don’t believe too in either the Euro or the Sterling. The AUD remains a local currency and is too linked with commodities prices.

That’s why, before any potential data that could be bearish for the US Dollar, the current bullish trend, started at mid-July, should continue. The bullish trend occurred between August 2007 and July 2008 (between points A and B) has retraced for a large part and it does not appear to be over. The last support, which was the 61.8% Fibonacci ratio, around 0.85 (point C), was cleared in early September and therefore has opened the way to a complete correction towards the low of August 2007.

The near-term resistance is the 15-day moving average to the price action failed to breakout above recently. The momentum and oscillator indicators remain bearish. Since the beginning of August, the RSI has been moving in the oversold area. However, the RSI did not succeed to escape this oversold area (points D and E) so the signal is still bearish. The MACD confirms that the trend is going downward.

The current bearish trend does not have any major support level before the low of August 2007. This point is likely to be therefore the target of the current price action. $0.7934 was the lowest closing price while $0.7672 had been the lowest intraday price. It may be the range where buying interests will give some potential rebound for the Aussie.

The most important part of investing is to clearly understand what you’re investing in. In the currency world, most currency traders will talk about the “seven” majors.

The seven majors are the currencies that are traded most often on major brokerage desks around the world. The seven majors are generally paired with the dollar, so technically, the U.S. dollar would count as the eighth “major.”
Here’s a quick 30 second introduction to each of the major currencies…

U.S. Dollar (USD): The majority of trades in the Forex market involve the U.S. dollar against a different currency because it is currently used as the world’s reserve currency.

Euro (EUR): This is the new kid of the currency majors. Lately, the euro has been stepping up to take its place as a reference currency, as well as a larger component of foreign reserves by banks. It is also known as the anti-dollar because the euro tends to appreciate as the dollar depreciates.

Japanese Yen (JPY): The yen has been known as the carry-trade currency because for years, investors have borrowed yen to fund their carry-trades. Because Japan imports all of its oil, when crude oil prices begin to climb this hurts its economy and greatly impacts the value of the yen.

Swiss Franc (CHF): Also known as Swissie, it is sometimes called a ‘safe heaven,’ due to Switzerland’s independent stance, economy isolation, and strong private banking system. This in turn has made their currency very neutral.

The British pound (GBP): Frequently called, Cable or Sterling, the pound first got these nicknames because it was the first currency the Forex market traded through ‘cables’ across the Atlantic. The pound is the fourth most traded currency on the market and Great Britain’s economy is one of the strongest in Europe.

Canadian dollar (CAD): This currency’s unusual nickname, the Loonie, comes from the coins appearance which features a loon, a common Canadian bird, on the coins backside. Canada is a resource-focused economy, so the price of oil drives this currency along with commodities.

Australian dollar (AUD): Known as the Aussie, this currency is popular in the Forex market because of Australia’s currently high interest rates and generally stable economy. The Australian dollar is greatly influenced and driven by gold prices.

New Zealand dollar (NZD): Also known as the “kiwi,” the New Zealand dollar traditionally tracks the Aussie dollar’s path because these economies are tied together through exports. However, sometimes the New Zealand can fall while the Aussie dollar rises as we have recently witnessed.