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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, we don’t have to go too far back to see that this currency pair has been in a pretty tight range for the past several weeks. We’re going all the way back here into September 24.
September 24, September 25 we got down underneath this green-shaded area and inside this blue box, and since then we’ve just been bouncing around from top to bottom over the past several weeks. Well, this isn’t anything new because in the Trade Room we’ve been studying the fact that this similar scenario took place over here. Not quite as long, but we’ve been studying the resistance into the green zone, the support and congestion into the pink zone, support into the purple zone at the bottom of the blue box. Even on the far left-hand side of this chart, we can see there was support on the topside of that green zone.
So, the green-shaded area clearly resistance over the past several weeks and over back here into history, back at the beginning of the year and late last year. Purple zone is our historical support. We could see that going all the way back into January and over the past four or five weeks, we’ve seen support here into this purple-shaded area and even yesterday, so far this week, we’ve seen support into this purple zone.
Now, the current downtrend of course is the main thing we want to pay attention to. This currency pair has been in a downtrend since up here at the top of the chart, where it made the highest high into June of this year. Started falling. Lower highs. Lower lows. An aggressive move down here. Then it started going into this range. So, overall, we’re still in a downtrend for this pair and the pattern of the trend hasn’t changed.
Lower highs. Lower lows are still the dominating factor. We haven’t turned into higher highs and higher lows really for this currency pair yet. So, the pattern of the trend hasn’t changed. It’s just gone into this period of congestion. So, what we want to do is focus our efforts in the direction of the trend. It doesn’t mean we can’t countertrend when appropriate, but I think your most appropriate place to countertrend trade are look for reversal for this pair, would be as close as possible down here towards the purple-shaded area, into the 0.8660, 0.8670, 0.8680-level. The purple-shaded area at the bottom of the blue box.
If you’re going to look for buy signals for it to go back up, that would’ve been over the past day or so would’ve been where you would’ve done that. On the other side, you’re looking for sells in the direction of the trend, so you’re going to sell into resistance. So, for today, our closest resistance will be the pink-shaded area. And as I say every day in the Trade Room, really what you’re trying to do on a daily basis is find more precise entry points that provide low risk and high potential reward. So, what you want is a profit target or a support and a sell scenario that’s farther away than your resistance target or the price ceiling that you’re looking at, which would be your risk.
So, in this case, this scenario, the selling into the pink zone targets the purple-shaded area. What’s the risk in that scenario? The risk is that it breaks above the pink-shaded area and goes back up here towards this green-shaded area. That’s the risk. So, the closer, or even within that pink zone, you can get, 0.8735, 0.8745, maybe even 0.8750 becomes lower risk because your stop loss placement would be just above there, and then you target back down to the purple zone in the direction of our momentum and our trend.
There’s always risk. Never going to be a scenario where there’s not risk, but what we’re trying to do is identify lower risk scenarios. So, like I said a few moments ago, if you were going to buy this, your lower risk scenario to do so would’ve been down there into the purple-shaded area because it provided a fairly low-risk scenario and your profit target back to the pink zone was much farther away.
So, now that we see that information from the Daily Chart, let’s take it down to the 4-Hour. You can clearly see those shaded area. You could see the big blue box that I’ve had there for weeks and weeks now here in the Trade Room. Purple zone would’ve been your buy scenario. We’re not there right now. If you’re looking for sells, selling the pink zone here. 0.8735, 0.8745, 0.8750. That pink-shaded area is your selling opportunity. The risk of course is that it breaks above there, starts working its way higher. So, if it gets back above 0.8755, 0.8760, we’ll start to look for it to target back here towards the green zone.
So, if you were thinking about buying today, I think this is a terrible place to buy it. It’s an obvious price ceiling right now. We’ve seen it historically, even within this blue box. This is a terrible place to buy it. Buyers are either looking for it to go back down to the purple zone or break above the pink zone. Until it does one of those two things, you’re not buying this pair. You’re more likely selling it here into the pink zone.
Now, I know several of you are probably thinking, “What about that gap that sits over here from the weekend?” Well, it’s already been more than 24 hours. If the market was going to fill in that gap, I suspect it would’ve done that already. Now, of course if it breaks the pink zone, we will see that gap filled, but at least at this point, it doesn’t become part of my own trading scenario. It’s been too long since it created that gap. I would’ve suspected that it would’ve filled it in almost immediately once it was created.
So, I’m not really worried about that, but I do know that if it breaks 0.8755, we’ll likely look for it back here to the green zone, and of course that becomes our next resistance target. An open and close above 0.8755 will target buys back towards that green zone as our next resistance. Let’s go ahead and zoom it in one time here on the 4-Hour Chart. Just make it a little bit bigger. Another thing that I’m going to do here is take Fibonacci from the highest high on the chart, down to the lowest low. And in doing that, Fibonacci high to low that we see of just this current down run leg that we see here puts the .382 Fibonacci retracement level at 0.8746, which, again, is right there smack in the middle of that pink zone.
If you’re doing anything today, that becomes your opportunity to sell as close as possible to that Fibonacci 0.8746, .382. Your risk of course is that it breaks above it and continues to pressure back up again for the AUDUSD. If you’re already in a sell, target the purple zone, 0.8685 or so. Top of the purple zone becomes your potential buy scenario.
Now, here’s another thing to think about. Forex Black Book is green. Everybody is probably saying, “Well, if the Forex Black Book is green, you have a buy bias, right?” I don’t think so. I’m not really ready to trust that trend bar quite yet because – zoom it back out again – we are in this period of ranging and congestion. And within a range and congestion, we could see many times where it bounces up and down and up and down. The trend bar may change several times before we go trending again.
But as I said a few minutes ago, even if you were going to consider a buy scenario for this pair, where do you buy it? Do you buy it underneath resistance, like it is right now and you see a green arrow under resistance, or if you’re going to buy it, where do you buy it? You buy it on a dip back to support that gives you lower risk, higher reward. Even with the green arrow, green trend bar, I still would look for a buy on a dip into support rather than sitting underneath resistance.
So, even with that Forex Black Book trend bar being green and a green arrow, I still think it needs to dip to support before you would buy it. More likely you’re looking at resistance here for the day today. And over time, if the trend returns, the downtrend returns, we’ll look for that trend bar to turn red once again for the AUDUSD.
