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I’m going to get started today on the Australian Dollar versus the US Dollar [AUDUSD]. Starting here on the Daily Chart, we’ve been studying this in the Trade Room for the past couple of weeks. These two blue boxes that you see at the bottom of the chart. First off, let’s take a look at the left-hand box and we can see resistance in the green-shaded area at the top. We see support and congestion inside the pink-shaded area in the middle, and support at the purple-shaded area at the bottom of the box.
We see a little bit of a range that developed in here. And if you take that blue box or really just follow the green-shaded area back in time, you also see consistent support on top of that green-shaded area. So, we know the green zone has been consistent support and resistance back here in the past, next to the left-hand blue box. And we see that congestion, some support on top of it, some congestion, support in the middle here into the pink zone, and then of course the support at the bottom.
When did it break out of this box? It didn’t break to the bottom side. It broke to the top side, open and close above the top of the green-shaded area and the blue box, and then began moving higher. And then we came up here to the top, inside the red box at the top. Bounced around there for quite a long time. Broke underneath it. Dramatic downtrend and, once again, here we are in that same area, same blue box over here on the right. Similar area on the left, where we see resistance into the green zone, support, congestion in the pink-shaded area, and support at the purple-shaded area. So, we’re kind of stuck inside of a little bit of a range. Between the green zone and the purple zone over the past two weeks, we’ve just been bouncing around, top to bottom.
Yesterday, in the Trade Room, my suggestions were that the best opportunities, the lowest risk, highest reward opportunities to trade the AUDUSD were all the way up here in the green-shaded area because it provided lower risk and higher potential reward to go back down, or back down here into the purple-shaded area because it provided lower risk and higher reward to go back up. Inside the pink-shaded area carried higher risk. The risk is higher. Your stop losses may be higher. You might just even take a few lumps here and there if you use smaller stop losses if you’re trying to buy or sell inside that pink-shaded area, but the top and bottom of that box are going to provide the lowest risk, highest reward opportunities.
Now, at some point in time, could be today, could be next week. At some point in time. I mean if we look here at this red box, it took a long time. Several months before it broke out, but we’re not sure how this will play out here. But at some point in time, we will either look for a break of the green zone and the top side of that box and reversal for the AUDUSD, or we will look for the bottom to breakout underneath 0.8660 and a continuation lower. But we can’t know for sure when that’s going to happen, so until that does happen, what I’m looking for is trading within the range, trading towards the bottom or towards the top, and being very cautious about trading around the pink-shaded area because literally, as long as it’s below that pink zone, we could see bounces and challenges back down to the purple zone.
When it breaks above the pink zone, we look for challenges and bounces back up to the green zone. So, we’re not really sure. It’s almost there in the pink-shaded area. It’s almost like a 50-50 chance. You might as well flip a coin. It could go down. It could go up while we’re in there in the pink-shaded area. My preference would be the green and the purple-shaded area. Now, if it breaks the purple-shaded area, we could see a pretty long push down. We could even see it back down here into the 0.8500s. Low-0.8500s, the blue-shaded area at the very bottom of the chart becomes our next target. On the way back up, there’ll be a lot more congestion to contend with. We’ve seen historical resistance and congestion around the yellow, the blue, the pink, all the way up into that red box up there at the top of the chart.
So, a lot more congestion on the way up. There’s less on the way down, but at least at some point we have to look for a breakout of that blue box. Let’s take it down to the 4-Hour Chart. There’s the same blue box. There’s the same area of congestion. Never quite reached over a past few days. Never quite reached the green-shaded area and just fell right back off of it. Yesterday I talked about the potential open and close, breakout under the pink zone. So, if you looked for that and you took a sell under the pink zone, targeting the purple zone, you’ve seen some profit, but now it’s come right back up and challenging the pink zone.
For the day today, again, as long as it stays underneath that pink-shaded area, there is the possibility of looking for it to go back down to the purple-shaded area, but be cautious and use appropriate risk strategies likely just above the 0.8756-level, top of the pink zone, because if it breaks above there, you don’t really want to stay in a sell because there’s a higher probability we take a turn back towards the green-shaded area. We have seen some contraction here for this pair. When I talk about contraction, we have to define the trend. A trend has lower highs and lower lows in a downtrend. An uptrend has higher highs and higher lows.
So, when we talk about contraction, we’re typically looking at lower highs and higher lows, where we see not a trending move, like we see right here, where it sees lower highs and lower lows, but an indecision time or a range developing when it is bouncing around here. Let’s zoom in one time here on the AUDUSD. Let’s just put two trend lines here. Of course we can see this one easily. We see lower highs. Now, that’s not a really given trend line, but just showing you that we see lower highs. We also see rising lows, and you can see that right here, where we see the lows getting higher.
So, we’re in a period of indecision, where we’re not in a downtrend. We’re not in an uptrend. We’re kind of in that decision zone. So, I still think your best lowest risk, highest reward opportunities will be as it rallies into resistance. Maybe the pink zone, but preferably the green zone, or dips into support, the purple-shaded area. If you’re looking for sells in the direction of the previous long-term trend and you expect that this is going to go down again, of course you’re selling the pink zone, you’re selling the green zone, or you’re selling underneath the purple zone. Those are your selling opportunities.
If you’re looking for reversal, you’re buying the purple zone. You’re buying on a break above the pink zone. Let’s move this over here, and that red trend line would be of course ideal. So, we’re at a hinge point really here into that pink zone. The hinge point being as long as it’s below it, there’s possibilities of diving down to the supports and a breakout to the bottom. If it breaks above it, of course we already have an idea that it will likely push back up here towards the green-shaded area. And of course at some point we break above there, we go higher.
There is some US data coming out at 8:30 Eastern Time today, about 40 minutes from the recording of this video, so could definitely affect this currency pair. If it comes out positive for the US, we will look for this to breakout through the purple zone and maybe even start the next phase of the downtrend. If it comes out negative for the US, we may look for the breakout back up above the pink-shaded area and a target back to the green zone. So, at least you have an idea where your lower risk, higher reward opportunities are. The purple, the pink, and the green-shaded areas today for the AUDUSD.
