Tuesday’s ETF Chart To Watch: CurrencyShares Australian Dollar Trust (FXA)

by on November 6, 2012 | ETFs Mentioned:

Markets kicked off the session on shaky footing as non-manufacturing ISM data just barely missed analyst expectations; this figure came in at 54.2, falling short of the forecasted 54.5 as well as the previous reading of 55.1. Regardless, major equity indexes managed to climb into green territory and end on a surprisingly positive note ahead of election day at home. In addition to the key political development this week in the United States, investors will also digest a number of important central bank rate decisions from around the globe [see 101 ETF Lessons Every Financial Advisor Should Learn].

The first rate decision will come from the Reserve Bank of Australia, and as such, the Rydex CurrenyShares Australian Dollar Trust (FXA, A-) will make its way onto our radar screen later day. The Aussie dollar may stage a volatile reaction at the opening bell as investors digest the overnight decision and economic commentary from overseas; analysts are expecting for the Reserve Bank of Australia to cut rates from 3.25% down to 3.00% [see our King Dollar ETFdb Portfolio].

Chart Analysis

This ETF is currently trading in “no man’s land” seeing as it appears to be stuck right in between key support and resistance levels. Since breaking above its 200-day moving average (yellow line) in July of this year, FXA has established a well-defined range for itself; for the past three months, notice how this ETF has managed to oscillate between the $106 (red line) and $102 (blue line) levels, failing to break out in either direction each time it has approached these levels [see 3 ETF Trading Tips You Are Missing].

Click to Enlarge

Given that FXA is currently trading right on its 200-day moving average, entering into either a long or short position is quite speculative given the high probability for a price swing in either direction [see our ETF Technical Trading FAQ].

Outlook

If the Reserve Bank of Australia cuts rates as expected and also issues a concerning economic outlook, the Aussie dollar may take a beating; in terms of downside, the next major support level for FXA comes in at around $102 a share. On the other hand, optimistic economic commentary may inspire a rally for the Aussie dollar in the currency market; in terms of upside, this ETF faces immediate resistance around $104.50 a share followed by the $106 level. As always, investors of all experience levels are advised to use stop-loss orders and practice disciplined profit-taking techniques.

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Disclosure: No positions at time of writing.