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AUD Cycle Of Accumulation And Distribution

AUD Cycle Of Accumulation And Distribution

The cycle of accumulation and distribution defines mark down for Australian dollar since 2012 (Aussie).

A rising US dollar and falling commodity prices should continue to pressure the Australian dollar at least for the next few years. Similar declines are playing out across the commodity market. Aussie’s capacity to hold 70, despite deteriorating ‘fundamentals’, has been frustrating the bears since early September. The Aussie’s unexpected strength, likened to a vampire that just refuses to die by the bears, will dissipate once the flow of leverage and sentiment concentrate and reverse in the months ahead (see leverage).

Trend

Negative trend oscillators (ITCO and LTCO) define a down impulse (decline) from 76.82 to 70.484 since the second week of June (chart 1). The bears control the trend until reversed by a bullish crossover.

A weekly close above 72.59 jumps the creek and transitions the trend from mark down to cause. A sustained close below 70.30 breaks the ice and confirms continuation of mark down.

Chart 1

AUD and Trend Oscillators

Leverage

The flow of leverage defines bull phase since April 2014 (chart 2). A DI2 close below its September 2014 low confirms continuation. A DI2 close above its March 2014 reverses the phase to bear.

A diffusion index (DI) of 34% defines waning accumulation. A capitulation index (CAP) of 18%, a more neutral setup, supports this message (chart 2A). These trends, the flow of leverage and sentiment from accumulation to distribution and fear to complacency, support the bulls.

The Aussie’s inability to rally behind these flows (trends) must be recognized as a sign of weakness (SOW). SOWs often precede stronger than expected phases when the flow of leverage and sentiment concentrates and reverses. This SOW, a cycle inversion so far, could be setting up a stronger than expected future bear phase. The SOW tightens risk management for bulls unless reversed by a technical breakout (see trend).

Chart 2

AUD and AUD Diffusion Indices

Chart 2A

AUD and Capitulation Index Chart

Positive leverage oscillators define an up impulse that opposes the bull phase and supports the bear trend (chart 3). This is bearish.

Chart 3

AUD And Leverage Oscillators

Time/Cycle

The 5-year seasonal cycle defines weakness until the first week of October – next week (chart 4). The seasonal cycle turns favorable for the bulls through October.

Chart 4

AUD 5-Year Seasonal Chart

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