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I’m going to begin the day today on the Australian Dollar versus the US Dollar [AUDUSD]. Starting here on the Daily Chart, this currency pair has been in a downtrend for the past several weeks. We start all the way up here at the top of the chart, into the mid-0.9700s. We’ve seen the fall all the way back down here, just above the 0.9000-level. Within that downtrend, of course we have created lower highs and lower lows. We place a trend line here to visually represent that trend.
Through the life of the trend, we’ve seen several periods where it goes into a leg of the downtrend, goes into a period of congestion, creates another leg of the downtrend, goes into a period of congestion, breaks out of there, continues to pressure down in the direction of the trend, and now, most recently, has gone into a period of ranging, congestion, or a channel that has held the market from going lower within the downtrend or going higher and changing the trend to an uptrend.
The blue-shaded area has held as our resistance for the past several days. Again, this is the Daily Chart, so we’re looking at a couple of weeks now where this blue-shaded area, into the mid-0.9100s, 0.9145, 0.9150 has held as resistance. Even in the most recent days this week, we’ve seen it hold as resistance. Going back to the left-hand side of the chart, within that blue-shaded area, you can see some historical significance to this price level as resistance back here into August of 2013. We some support back in July of this year, and even some more resistance back here on the left-hand side.
Now, moving back to the bottom of the this congestion over here on the right-hand side, we could see that just above the 0.9000-level. 0.9015 all the way up into 0.9060, the yellow-shaded area has held as our support and is currently, again, holding as support for this currency pair. Once again, go back in time, we could see that further back in history, we go back into August of this year; we could see some resistance underneath the yellow-shaded area. Back into early August, we see some support on top of the yellow-shaded area. And again, going back into July, we see support. Farthest left-hand side of the chart, support into that yellow-shaded area.
So, that of course historically is a significant price level also for the AUDUSD. So, we can see some historical significance to the yellow-shaded area as support. Blue-shaded area as resistance. And of course we have the trend line as a diagonal plane of resistance right now. So, for the day today, if you’re trading in the direction of the trend, which is a downtrend – if you’re going to trade in the direction of the downtrend, there’s two things you’re looking for. Either a rally into resistance, like what we saw over the past couple of days into the blue-shaded area for a sell, which we’re a long ways from there, so I don’t think we’re looking for that at the current moment. But a rally into resistance or a breakdown of support, and that’s probably your closest opportunity here today for the AUDUSD.
The yellow-shaded area, of course, is our support, and I would say even going as far down as the 0.9020 to 0.9015-level, the last support lows. And I don’t simply want to see a spike underneath it. We see these last three candles spiking underneath the 0.9015-level and then returning back higher. I don’t simply want to see that. I want to see a clear candle body open and close. Well, again, this is the Daily Chart, so that may mean that we have to wait another day before we can actually see an open and close underneath this yellow-shaded area. So, patience will be a virtue here for this currency pair. I need to see a breakdown of the yellow-shaded area and a breakdown of our last support lows before I’m confident it’s going to continue to pressure lower all the way back down into the pink-shaded area.
And I have an example of that over here on the left-hand side with this orange circle, where we see an open and close underneath it, it then began using the yellow-shaded area as resistance for a few days, and then fell back down into the pink-shaded area. So, this example over here is exactly what I’m looking for over in the current timeframe for the AUDUSD. It doesn’t have to, but that’s what I’m watching for.
The other side of it is if you’re looking for reversal for this currency pair. You’re just about at your very best opportunity to look for reversal. When you’re looking for reversal, you’re looking, first off, for a low-risk scenario, so buying at a lower point becomes a lower-risk scenario to buy it, looking for reversal. Then you’re going to begin looking for candlestick formations, charting patterns that imply reversal. I don’t think we really have sufficient evidence of reversal here on the Daily Chart, but definitely a possibility as we’ve seen support here into the yellow-shaded area.
Let’s go ahead and take this information down to the 4-Hour Chart. And as we get down here to the 4-Hour Chart, once again we see the market challenging into the bottom of the yellow-shaded area. Now, I’m getting a little bit more confident with potential reversal here. The past three four-hour candles, not including the current candle, really showing that the buyers may be looking to take back control of this. We saw the large red candle pushing back down towards the 0.9015-level. A smaller candle body just after that. A little blue candle at the bottom into the 0.9015-level. And then a retracement blue candle, a bull candle coming back up almost to the top of the previous red candle.
So, that could give us some hope for a reversal here. What I’d like to see is a push back above the 0.9060-level. Right now the current market is sitting right about 0.9050, so another 15 or so pips higher, back above the yellow-shaded area, may give us confidence that it’s going to go back up towards the blue-shaded area. And a good clue to that or a good example of that is here, where we’re underneath, inside the yellow-shaded area back here. It found resistance underneath it, bounced back down, finally broke above the yellow-shaded area here, and continued to move to the blue-shaded area.
So, that’s definitely something that may have your interest today. So, let’s go ahead and bring these arrows over here, because this is what we’re looking for. Above the yellow-shaded area and above 0.9065 may be a clue that it’s going to go back up towards the blue-shaded area and challenge the bearish trend line once again into the mid-0.9100s. The other side of the story of course is that it breaks down underneath this yellow-shaded area and continues to pressure back down in the direction of the trend. I would lookout for a breakout today. A breakout underneath 0.9015 gives you expectation it’s going to continue to go lower back down into the 0.8900s. A breakout above 0.9065 or so, above the yellow-shaded area, likely looking for the push back towards the mid-0.9100s for the AUDUSD today.
