Aussie Climbing To Fall

Hello Forex Traders!

The number one question on your mind must be:

„What on earth happened with the Aussie?“

6- 8- 2013 1 min audusd

It is always remarkable to see a currency in fact become more valuable in relationship to others when there is a rate CUT. As you probably know the Australian Dollar rate was cut from 2.75% to 2.5% on Tuesday, but despite the decrease, the Aussie saw its price move UP against the USD gaining some 70 pips.

Some could explain this move by saying that the rate cut was already factored in price prior to the decision. Rate decisions always remain tricky items, don’t they?!

The funny thing is that the AUDUSD’s daily candle yesterday (Monday) was a PINBAR! Did the technical’s just overrule the Fundamentals? Write down your opinion down below!

6- 8- 2013 DAILY AUDUSD

CLIMBING IN ORDER TO FALL?

Regardless of the reason why the currency has done what it has done, when looking at the chart I still think that this climb up is just an excuse for the AUDUSD to fall. Something similar to when a TV show ends their season with a nail biting twist which is to be solved in the next season 4 months later, the AUDUSD is creating a similar suspense by making a dramatic rise after a cash rate cut.

Let us review the facts and figures:

1)      Mega down trend since hitting 1.06 +/- mid April

2)      Recently went sideways for 3-4 weeks and bounced up and down between 0.90 and 0.93

3)      Then continued down trend from 0.93 to 0.8850, the NFP did not stop the AUDUSD from continuing down

6- 8- 2013 daily audusd 2

4)      The last move down on the 4 hour chart has opened in 3 waves, with a strong 3rd wave and no divergence

5)      The Oscillator is confirming the powerful 3rd wave

6)      The Oscillator is approaching the 0 line, indicating that a retracement is nearly finished on the 4 hour chart

7)      The retracement is most likely a wave 4, which means that a wave 5 is remaining

8)      Wave 4 retracement is usually the 382 Fibonacci retracement, which is now for the AUDUSD at 0.9020, and price is approaching that level

9)      The 500 Fib is another common turning spot for wave 4 at 0.9070

10)   There is major daily broken support levels at 0.9030-40 that can become resistance

11)   The targets of that Fib are at the -0.272 at 0.8720 and the -0.618 at 0.8570

12)   Be careful though as wave could be slowish and truncated, which means it potentially could end at double bottom. Although looking a the pace of wave 3, I do think this scenario is likely.

The wave 4 will not end without a fight, nor will wave 5 make a dash down without making some ups and downs in between.

ENTERING STRATEGIES

There are several options how to catch this turn. A Forex trader could do that in a more conservative fashion, more aggressive, or highly aggressive. Or a combination of 2 or all 3, but do bear in mind that the overall risk of the entire position should not exceed the maximum risk levels stipulated in your risk management plan.

6- 8- 2013 4 hr audusd

The most aggressive method is to place a pending short order at the 382 Fibonacci level around 0.9020. The Stop Loss usually should be above the swing high swing low, which is in this case 0.9295. That would require a massive stop loss in terms of pip size, so a stop loss above the 500 Fib would make more sense. This entry is risky but it is trying to catch price at a potential resistance / turning spot without waiting for price action confirmation. As some traders say: why try to catch a falling knife? It really depends on your trading psychology and also, case by case if this entry method makes sense.

The slightly aggressive method is waiting for price action signals to confirm the resistance level. For example, bearish engulfing twins or a rejection wick at the top of an hourly or 4 hourly candle are typical signs of rejection.

The more conservative approach is too wait for a actually turnaround of price. And with turnaround I mean that the price is making Lower Lows, Lower Highs (LL,LH) on the 15 min chart, then LL,LH on the 1 hour chart, and then finally LL,LH on the 4 hour chart.

Before the currency makes the turnaround from Higher Highs and Higher Lows to LL,LH on the 4 hour chart, there will be many ups and downs and waves with lots of Fibonacci retracements, before this AUDUSD might start to fall down a bit faster. Especially in a potential wave 5.

Which entry method do you usually use? Let us know down below in the comment secion!!!

EURAUD

The same holds true for the EURAUD. It too is well set up for a potential upside trend continuation, s the currency has retraced back to potential support.

Considering the fact that the EURUSD is in a wedge and sideways range, both the AUDUSD and EURAUD are position well to capitalize on potential AUD weakness.

6- 8- 2013 euraud 4 hr

 

Don’t forget to read here Tim’s article: http://winnersedgetrading.com/traders-tech-writing-your-own-ea-part-56-reading-and-writing-files.

As always, thank you so much for reading and for sharing this article with others!!

Good Trading!!

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  • Chris Svorcik

    Thank you Hugh for your feedback! The AUDCHF looks like it has good potential indeed. Great insight. Please dont hesistate to give your comments more often.
    XAUUSD also seems to be back on the bearish track indeed. Could be very interesting!

  • Hugh Kimura

    Gold also seems to be resuming it’s downward move, putting more downward pressure on the $AUD and $CHF has been pretty strong, so $AUDCHF might be another pair to consider. I’m looking at 10 EMA for a bounce. Just my opinion, of course.