AUD Break Down in FX

Hello Forex traders,

The negative employment change for Australia fueled another round of Aussie weakness. The expected +10.3K was actually a -22.6K and the AUDUSD spiraled down after it already had made substantial losses throughout the day. The EURAUD and GBPAUD rose strongly as well. Let’s take a look.

AUDUSD

Basically, the Aussie recovery seems to have been short lived. The Aussie downside struggled for a long while and eventually price was able to muscle itself above a downtrend channel and 2 trend lines (green).

16- 1- 2014 au

The strong rally at the end of last week and the beginning of this week saw the Aussie break from around 0.8890 to 0.9080. But the upside was seriously rejected yesterday, as all the upside gains were washed away just as quickly as the Aussie had strengthened. This brought price back at the support line (magenta). The downside accelerated yesterday upon the release of the news as the Aussie crashed and broke through that trend line (magenta).

What next?

1)      With such a momentum burst and a break of the 0.8820 daily/weekly bottom, more Aussie weakness can be expected. From the daily chart perspective, the last 2 days were bearish with Tuesday’s candle engulfing the body of Monday’s bullish candle. Today’s candle is breaking the trend line.

2)      With that in mind the target of the breakout are the -27.2% and -61.8% Fib levels (green) at 0.8376 and 0.7780 (after the 50% bounce back in October 2013).

16- 1- 2014 au 2

How to trade it?

I am looking for the following triggers:

a)      A clear break of the bottoms (green lines) by at least 30 pips and a subsequent pullback to the broken support which has a good probability of becoming resistance.

b)      Chart patterns on the hourly chart such as bear flags, wedges and triangles and subsequent breaks of those corrections to the downside.

OTHER AUSSIES

The same holds true for EURAUD and GBPAUD. Here too any patterns on an hourly chart consolidation are a prime target for breakout trades. If you any questions how to trade those patterns and breakouts, make sure to join our Forex trading room.

Looks take a look at the AUDJPY. Yesterday in our trading room we mentioned the potential trade setup for a short on this pair. Eventually we choose a long on the USDJPY. The reason for that was because the Aussie was right at the magenta trend line, the Aussie had the employment news release, and the USDJPY was nicely trending on the 15 min. In any case the short trade idea did manifest nicely after a classical break of the triangle bottom (magenta) and pull back. More downside to test the bottom (green) at +/- 91 is likely. Especially if one considers the fact that the USDJPY is at a resistance spot.

16- 1- 2014 aj

USDJPY

The USDJPY has a price action pattern that resembles a V shaped valley. The strong down followed by a strong up raises some question marks whether the upside is really only a retracement or the continuation of the daily/weekly/monthly uptrend.

The trading room actually took a long yesterday but our TP (at 104.96) was just too sharp as the upmove stopped 4 pips shy of our mark (104.92). Our SL is at +7 pips so the risk is off the table and the trade is still open…

Price is now very close to the big daily top (red), which means that price will struggle with pushing forward. In fact there is a good chance that price will not be able to break through a big daily top (red) without having at least some retracement.

In my opinion, there are 2 most likely scenarios:

1)      A break of the uptrend channel (purple) for a retracement back down to 104 – 103.50

2)      A solid move down back to the bigger daily 38.2% daily Fib at 102.20

Important aspect is that the channel (purple) breaks. Without the break, the momentum can carry price higher and closer to the 105.40 top (red).

However, once the correction down happens, be on the lookout for the daily/weekly/monthly uptrend to continue. Also, if the top does get broken (red) without that retracement I mention here above, then most likely the uptrend is back in full swing.

16- 1- 2014 uj

Which pairs are you looking at? What do you think of the Yen?

Thanks for reading and sharing this article!

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