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

by on August 7, 2012 | ETFs Mentioned:

Equity markets extended gains from Friday’s massive rally to start off the week on a positive note. Optimism from the eurozone spilled over onto Wall Street as investors reacted bullishly after German Chancellor Merkel pledged her support to the European Central Bank’s government bond-purchasing program. The S&P 500 Index appears poised to retest the 1,425 level this week as the benchmark has posted a series of higher-highs and higher-lows since its most recent bottom on June 4, 2012 [see also ETF Insider: No News Could Be Good News].

With no major economic data releases on the homefront taking place, investors will turn their attention to Australia. The Rydex CurrencyShares Australian Dollar Trust (FXA, A) is our ETF to watch for the day as it could experience volatile trading at the opening bell following the overnight reaction to the latest Reserve Bank of Australia interest rate decision [see also Australia ETFs: 9 Ways To Play].

Chart Analysis

FXA has made a remarkable run-up since its most recent bottom at June 1, 2012; since then, shares of FXA have climbed 8% while at the same time managing to break above their 200-day moving average (yellow line), which has served as noteworthy resistance in the past. FXA has been making higher-highs and higher-lows without taking a break over the last two months, showcasing the sheer strength of the prevailing bullish momentum [see also Easy-As-ABC ETFdb Portfolio].

Click To Enlarge

One piece of bearish evidence however is the fact that FXA remains stuck in a range from a long-term perspective. Notice how this ETF has oscillated between $96 and $108 a share over the past 1 year, most recently failing to summit resistance on February 29 and then bouncing off support on June 1, 2012. Investors looking to jump in long at current levels should note that FXA is nearing its historical resistance level, which may suggest that profit-taking pressures could spark a correction over the coming weeks [see also 3 ETF Trading Tips You Are Missing].

Outlook

If markets react positively to the economic commentary and outlook issued by the Reserve Bank of Australia, this ETF could gap higher at the open; in terms of upside, FXA has no major resistance until the $108 level. On the other hand, a bearish reaction to the latest outlook and rate decision could send the Aussie dollar lower; in terms of downside, FXA has support at $104 a share followed by the $102 level. As always, investors of all experience levels are advised to use stop-loss orders and practice disciplined profit-taking techniques.

Follow me on Twitter @SBojinov

[For more ETF analysis, make sure to sign up for our free ETF newsletter or try a free seven day trial to ETFdb Pro]

Disclosure: No positions at time of writing.