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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, a couple of trends that we want to take a look at here for this currency pair. First off, the previous downtrend. We go from the highest high on the top left-hand side of the chart into the mid 0.9700s. We saw the fall all the way back down here into the mid-0.8600s. It’s quite a long fall during that downtrend.
Taking Fibonacci of that downtrend, we can find the .786 fib right here in the middle of this yellow-shaded area, right around the 0.9520-level. And most interesting here would also be the .618 fib of that same previous downtrend. If you look here, it’s kind of hard to see right here on this viewpoint. You’ll see it easier on the 4-Hour Chart, but right around 0.9340 is where the .618 fib is, and we’ll see that a little bit better. It’s right here in this little orange-shaded area in the middle of the red box. So, we’ll see that a little bit better on the 4-Hour Chart, but I just wanted you to get a longer-term perspective of this currency pair.
Then we saw an uptrend begin. All the way down here into January of this year, we saw the uptrend begin back again down into the mid-0.8600s, climbing from there all the way back up into 0.9500 again, the yellow-shaded area at the top of the chart. So, a previous downtrend. Current uptrend. The yellow-shaded area, again, is where the .786 fib is of that previous downtrend. Came very close to it. Didn’t hit it exactly, but then came right off of it pretty quickly from that resistance.
Zoom it in a little bit now that we could see where that red trend line comes from. We zoom it in a little bit. We can see we’ve been toying around with that red trend line for the past three or four days. We were a little bit underneath it. Now we’re just back above it. That’s one trend line that we can look at. The other one is the blue trend line. And if you take a look at this blue trend line, it starts right here, down at the bottom of the red box, into that yellow-shaded area at the bottom of the red box. The blue trend line coming up representing higher highs and higher lows. Just this little short leg of the uptrend.
Interesting here is we did clearly break underneath that blue trend line without a doubt and now we’re coming back up underneath it to challenge as resistance. And this is a familiar pattern, where we could see the market breaking through a trend line or a support, and then it comes back underneath it to challenge it as resistance. The question is of course: now are we going to continue to hold that as resistance into the blue zone, the blue trend line, or is it going to break back above it and go higher? And we can’t know that for sure, so what we’re going to do is plan our trades accordingly.
Well, as we look at it right now and we’re challenging that blue-shaded area, blue trend line as resistance, we can look back in time. It’s not too hard to do that. Look back in time along the blue-shaded area, between, we’ll call it, 0.9400 and 0.9430. You follow that back in time. You see a lot of congestion, resistance here. You even go back to the left-hand side. You see a lot of congestion and resistance here. So, clearly that blue zone just into the low-0.9400s is resistance. So, for buyers right now, if you’re thinking about buying it, if you’re not already in a buy and you’re thinking about buying it, I would be discouraged about buying it into resistance, because if history has anything to say, it’s going to have a very difficult time breaking through and sustaining a hold above 0.9400, so I would be very discouraged about buying it right now.
If anything, I think your best lowest risk, highest reward opportunity right now would be looking for intraday selling opportunities under this resistance. That way, if it does bounce off of it like it did back in history, we’re able to take advantage of that fall. Now, of course, if you’re going to continue to look for buying opportunities, I would suspect that you’re looking for a breakout above the blue-shaded area for the continuation back to the yellow zone at the very top of the chart.
So let’s take all of that information back down to the 4-Hour Chart. First off, the Forex Black Book trend bar is green, but it is dark green, so that’s something to consider. Dark green means that there’s some disagreement between the trends. The previous trend was up. It was moving up. It moved all the way up to the yellow-shaded area at the top of the chart, into the 0.9500-level. Then it dramatically changed, which means it turned dark green. I was kind of surprised it didn’t turn red this week, but interesting enough it stayed the dark green color.
It’s moving back up again in the direction of that trend. Again, if you’re looking for an opportunity, your last opportunity to trade the Forex Black Book was this green arrow right here. So, if you bought it on this green arrow right here, you’re now sitting with some profit. If you bought it on that green arrow, you’re seeing about 30 to 35 pips of profit right now on the AUDUSD. Now, I talked about this yesterday in the Trade Room. I would probably have been discouraged about buying on that green arrow because it was so close to the market open time for the week after a three-day holiday weekend with the bank holiday on Friday. So, I would’ve been discouraged about that, but if you decide to do it, you’re now sitting with about 30 to 35 pips of profit as it challenges back to the blue zone.
Again, unless you bought it down here with that green arrow, I don’t think you want to buy it right now. We know that historically this blue-shaded area is resistance, so I think it’s more likely you’re looking for resistance here and potential reversal. If you’re in a buy already, this is your targeted zone for profit. If you’re not in a buy, I don’t think you want to buy it now. When do you buy it if you’re going to look for a new buy? I think there’s really only one reason to buy it again, or actually there’s two reasons. A dip back to the green zone or a break above the blue zone. So, those are really your two opportunities to buy. A dip back to the green zone or break above the blue zone. Otherwise, as it challenges up here to the blue zone, I think it’s becoming an opportunity to sell on this reversal or this retracement, and you look for it to go back down again.
If we take Fibonacci from the highest high on the chart, down to the current low, just this last downtrend leg, we find the 50% retracement level right at 0.9416, a little bit lower than the middle, but right there into the blue-shaded area. So, again, that tells me that there’s a high probability of resistance here. We can see that back on the left-hand side of the chart. I would be discouraged about buying it right now, as we approach that blue zone. The only reasons I would even consider a buy, again, is a dip back to the green zone or break above the blue-shaded area. The closer it gets to the blue-shaded area, I think, is better suited for a selling opportunity and a return back in the direction of the momentum that began last week. The downward momentum.
Your risk, your stop placement or if you’re using the Advanced Loss Recovery (ALR) tool goes just above the .618 fib at the top of the blue-shaded area, just above the 0.9437-level. So, the closer you get into that blue zone, that risk becomes smaller. Your potential loss or recovery zone becomes much smaller if you wait for it to rally into that blue zone. So, for the day today, my suggestion is looking for sells on rallies into the blue zone. Your risk, stop loss or ALR is just above the .618 fib at 0.9437, just above there. You look for targets back down to the green zone, the orange zone down at the bottom of the chart, or even lower. If you’re looking for a buy, buys on dips into the green zone or breaks above the blue zone become your opportunities today for the AUDUSD.
