Trade Setup of the Day: Long AUD/USD (March 5, 2013)

The AUD/USD pair has been trading cautiously around the support zone from 1.0150 to 1.0200 for the past few days, as traders waited for the monetary policy decision from the Reserve Bank of Australia. During the actual statement today, the bank decided to keep rates on hold at 3.00%, as Governor Stevens maintained that the RBA’s recent easing efforts are just starting to take effect.

From a technical standpoint, a hammer candlestick pattern has formed on the daily time frame right on the 1.0150 support level. This indicates that the recent selloff, which was mostly a result of pricing in rate cut expectations, is already over and about to reverse. Right after the rate statement, the pair jumped back above the 1.0200 level and appears ready to trade even higher.

A bullish divergence has also materialized on the daily chart as the price made lower lows, while stochastic made higher lows. Now that stochastic is moving out of the oversold area, Aussie bulls could push the pair right back up to the top of the long-term range around 1.0600.

Going long at 1.0250 until 1.0600 with a stop below the 1.0150 level would be a 3.5-to-1 reward-to-risk ratio.

By Kate Curtis from Trader’s Way