Could the Break of 142 Day Consolidation Zone Turn Out to be False?

142 trading days: that is how long the AUDUSD consolidation lasted…

This week things changed and a bearish breakout occurred. Finally the AUD breaks under the weight of recent USD strength. The US Dollar was showing strength against the Euro, Pound and Kiwi but failed to do so against the Aussie. With the AUDUSD consolidation break the USD bull run could tank yet again.

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The main question is: is the break of the consolidation zone false?

The answer is NO. Massive bearish daily candles with closes very near the candle lows are signaling a strong breakout. Or in other words: there is no hint of a false breakout so far. The closure of Wednesday’s daily candle would still be good to monitor as a big pinbar could certainly change the outlook.

Next question: how do I trade the AUDUSD?

The answer: for the moment I am waiting for a hook back to the broken support which now has a decent chance of becoming resistance. Any of the Fibonacci retracement levels could provide the turning spot for more downside but I would not expect a bigger pull back than the 50 Fib. The 23.6 Fib has confluence with the bottom of the zone (blue); whereas the 38.2% has confluence with the trend line (purple). Find out more about how to tackle the AUDUSD bearishness in this previous article: http://winnersedgetrading.com/analysis-of-the-audusd-and-where-it-is-going/.  

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Should I consider trading the AUD weakness against the GBP?

The GBPAUD for instance is showing Aussie weakness as well. Some traders might be looking to capitalize on the Aussie weakness against the British Pound.

In my opinion this is not a good move. The GBPAUD is in a downtrend; far from an uptrend. The current AUD strength is most likely a retracement against the GBP for further downside. Although a trader never knows for sure, the probabilities of making profit on a long in the middle of a strong downtrend are dim.

I believe there is more profit potential by waiting for bearish price action signals on the 4 hour or daily chart. Sooner or later I am expecting price to respect one of the Fibonacci levels (blues) or the top (red lines). I will only change that analysis once price clearly makes a higher low and breaks though a resistance trend line (such as the purple one).

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SUMMARY:

All in all, the AUDUSD bearish break looks well set for short trades – although more confirmation is needed to confirm the downtrend break. If it is viable and not false, the AUDUSD could be in for a good fall with lots of profit potential. However due to the strong GBPAUD downtrend, trading the GBPUSD seems to be best of 2 worlds: GBP weakness and USD strength.

The GBPUSD has fallen with lots of momentum. The almost straight arrow down has a high chance of encountering more bearishness but from where? I am inclined to place 2 Fibonacci retracements levels: a tighter (red) and looser (blue) one. These Fibs could be a good help when price makes a retracement. 

Happy Trading!

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