Price Action FX Trade Setup

Hello Forex traders,

With today’s Euro and Pound interest rate decisions and subsequent press conference plus tomorrow’s big NFP and unemployment data release for the US, the market will most likely fall into its usual routine of big quietness prior to the storm and then increased volatility after the news releases.

Despite the expected news releases and unknown impact of these events on the market and price action, there are still some interesting opportunities to consider.

AUDNZD

The Australian Dollar weakness has been strong versus many currency pairs, not only vis-à-vis the U.S. Dollar, Euro and British Pound. A great example is the currency pair AUDNZD, which has been trending down strong and long. Here below is a screenshot of the monthly chart.

The chart shows a fall from +/- 1.38 to 1.05 for a 3,000 pip trend, which lasted from March 2011 till now. Not too shabby!

6- 2- 2014 AN

MAJOR PINBAR

There is another reason why the AUDNZD monthly chart is of interest to us. Last month’s (January) monthly candle has a big wick at the bottom: a roughly speaking 340 pip wick versus a 420 pip candle, which means 80% of the candle is a wick.

Translation: pinbar and big buying pressure.

The upside bounce certainly does not arrive at an unexpected moment: the AUDNZD monthly pinbar occurred right at the support level on the left of the chart, which is the lowest point of the AUDNZD in over 10 years.

WEEKLY PERSPECTIVE

On the weekly chart there is a clear and strong down trend, despite the strong bullish weekly candle. If anyone had any doubts about the trend, a good advice is to take a look at moving averages. In this case, the moving averages are aligned and are at a steep angle, which indicates a very strong trend.

Any upside trade would be a reversal trade, but price has extended away from the averages quite far. And this does give the opportunity for a reversal trade setup. In this scenario, the trade idea is that the currency pair price could move back to its average, which means that the target is the next resistance level in combination with the moving average and Fibonacci retracement level between 1.1169 (61.8% Fib) and 1.1353 (78.6% Fib).

Now that the target is established, what could we say about the entry? Let us zoom in to the daily chart.

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DAILY PINBAR

First of all it is important to realize that price formed a very interesting price action signal at the 38.2% Fibonacci retracement level: the candle stick pattern of a pinbar doji was formed on Tuesday.

A price action signal at the 38.2% Fib within the down trend could certainly cause the currency to retrace first retrace down before making the bigger retracement back up again. In that case the monthly candle wick would get some retracement prior to a bigger bounce. The best thing to do in that case is to place a Fib on the upmove (between the 2 purple circles) and wait for the 50%/61.8%/78.6% Fib bounce of that swing high, swing low.

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The other scenario is that the pinbar was just an exhaustion of the uptrend. There is (a slight) divergence on the daily chart between the 2 bottoms and the monthly support could be a huge boost. In that case price would need to break above the pinbar high (preferably by 15 pips) to invalidate the danger of the pinbar formation. But then the 50% Fib level is close by so, only a retracement after the break would provide sufficient space for a decent reward to risk trade.

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What do you think of these opportunities? Is the AUDNZD daily pinbar an interesting opportunity or will you stay on the sidelines? Let us know down below!

Thank you for reading and sharing this article!

Wish you Good Trading!

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