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

by on August 21, 2012 | ETFs Mentioned:

Stock markets around the globe kicked off the week on a sour note as resurfacing worries over European debt drama paved the way into red territory. Profit-taking pressures were quick to emerge after Germany’s Bundesbank expressed concerns over the recently proposed European Central Bank initiative to buy back government bonds. Aside from FOMC minutes on Wednesday and durable goods orders on Friday, investors will have another light data week, although this opens up the doors for European headlines to take center stage [see also 5 Commodity ETFs That Don't Exist Yet, But Should]. 

With no major economic data releases on the homefront until Wednesday, investors will instead focus on the Rydex CurrencyShares Australian Dollar Trust (FXA, A-) today following the latest Reserve Bank of Australia minutes. The Aussie dollar could experience volatile trading in the overnight session as investors react to insights from the latest bank meeting, which may lead to a gap in FXA at the opening bell [see also King Dollar ETFdb Portfolio]. 

Chart Analysis

FXA has staged a resilient comeback since it peaked at $108.85 a share on February 29, 2012; since then, shares have held above and bounced off support at the $96 level similar to the price pattern observed during October of last year. What’s encouraging this time around is the fact that FXA has managed to hold its head above the 200-day moving average (yellow line) for several weeks in a row, suggesting that bullish pressures have undoubtedly been revitalized [see 17 ETFs For Day Traders]. 

Click To Enlarge

As FXA has been trading higher within a fairly well-defined range (blue lines), it currently present an attractive entry point; notice how FXA is right near the bottom-half of its channel, which allows for traders to more carefully manage their downside risk while still boasting lucrative upside potential [see also 5 Tips ETF Traders Must Know].

Outlook 

If bullish sentiment prevails following the latest minutes release overseas, the Aussie dollar could enjoy a day in the green; in terms of upside, FXA has resistance at $106 a share. On the other hand, another “risk-off” day could create headwinds for FXA; in terms of downside, this ETF has immediate support at $104 a share followed by the $100 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.