News Events Clutter FX Week but Aussie Weakness Tradable

Traders are expecting a highly volatile week with plenty of news events, economic figures and political choices in the upcoming days. On Wednesday the FOMC statement is released and on Thursday FED chair Yellen is speaking. The big question mark this week is the Scottish vote on independence which will take place on Thursday September 18 (click here for more details).  The volatility in the Forex market could encounter spikes up and down with such key developments occurring throughout the week – especially the USD on Wednesday and the GBP on Thursday.

The GBPUSD weekly candle posted a bullish pinbar last week but this particular candle stick pattern was most likely caused by short positions being closed after a massive drop of almost 1,200 pips. Some profit taking in front of such a news filled week is only normal and hence a pinbar could be expected. Whether the pinbar will have impact on the market is highly doubtful: FOMC and the independence vote will dominate the market’s reactions. In fact that holds true for all of the other GBP pairs as well.

GBPUSD

AUSSIE MASSIVE BREAK CANDLE

The AUDUSD broke last week out of its 142 consolidation zone and it did so with flying colors (no sign of weakness). The AUDUSD weekly candle was the biggest in size of the past year and the close occurred right at the weekly low. Translation: there was bearish control throughout the week and no sign of the bears losing that control towards the end of week.

AUDUSD

I would have no problem with placing a Fibonacci retracement tool on the weekly breakout candle and taking any of the Fib levels (if price is able to retrace there). There is an extra confluence of resistance at the 50-61.8 Fibonacci retracement levels due to the broken bottom/support level which turns into resistance.

The targets are the -27.2 and -61.8 Fibonacci extensions and the weekly bottom. The stop loss should be above the weekly high or weekly top.

16- 9- 2014 au 2

On the 1 hour chart it would look like this:

16- 9- 2014 au 3

EURAUD DIFFERENT?

The EURAUD also has a strong AUD weakness candle (for EA a bullish candle) with a close near the high as well. In fact the EURAUD has bullish engulfing twins, which could have a big impact. But traders should also realize that the bullish twins are a reversal signal within a downtrend. The EURAUD is therefore in a totally different situation than the AUDUSD: whereas the Aussie (AU) is finally breaking out of a consolidation zone after lengthy USD strength already has occurred, the EURAUD in fact has been in a strong down trend.

The market structure tells me that the AUD weakness is better traded against the USD than the EUR; also because the EURUSD is in a downtrend. The EURAUD reversal weekly twins will most likely encounter some bullish follow-through but for the moment that space seems limited and the pair could easily revert into a downtrend again or stay stuck in a consolidation zone (EUR and AUD equal in their relation).

16- 9- 2014 ea

Do you agree with the above conclusion that the Aussie weakness is better traded against the USD than EUR?

Happy Trading!

 

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