Trade Setup of the Day: Long AUD/USD (February 27, 2013)

Stochastic has been deep in the oversold region for the past few weeks, suggesting that Aussie bears are running out of selling power.

Aside from that, the stochastic has made a bullish divergence with price as the oscillator made higher lows while price made lower lows from the start of the year. This also hints at a possible bounce, depending on market catalysts.

There are no major reports due from Australia this week and the big market mover from the US, which is Fed head Bernanke’s speech, was already finished. In his speech, Bernanke talked about the recent FOMC meeting minutes and the timeline for the withdrawal of asset purchases. He did mention that the benefits of further asset purchases outweigh the risks though, which meant that the expected tapering off of stimulus will not take place anytime soon.

A swing long trade at 1.0200 or at market with a wide 150-pip stop and a target at the top of the range (1.0600) would yield a little more than 2.5-to-1 reward-on-risk.

By Kate Curtis from Trader’s Way