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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, over the past several weeks, we’ve been studying these two blue boxes that you see here at the bottom part of the chart. You go back to the left-hand side of the chart. We saw some support on the green-shaded area, on top of the green-shaded area, back here in 2013. Then it finally got back underneath it and found resistance in that green-shaded area inside the blue box.
Resistance in the green zone, congestion in the pink zone in the middle of the blue box, and then support in the purple-shaded area at the bottom of the blue box. Then we go several months later. It went up here to the top of the chart. Went into a range between the red box here at the top of the chart. A downtrend began apparent as it broke through the bottom of the red box and continued to pressure lower. Then over the past several weeks, and I’m going to put my cursor right on it, so you could see where it started, back here into late September, September 23/24, we got back underneath the green-shaded area and then once again began using that green zone into the low to mid-0.8800s as resistance.
So, for several weeks, we go between that late September timeframe, September 24, bouncing around, finding congestion in the pink zone, support in the purple zone, resistance into the green zone all the way through, until last week into November 4/5, where we finally pushed back underneath that purple zone and we broke out of this range or congestion that we’ve been in for several weeks.
Then we took a move all the way down to the blue-shaded area, into the 0.8530s, which was expected as a potential target for this pair, and now we’ve seen the return back underneath these historical supports found here into – we’ll just list out the prices between 0.8660 and 0.8685. That’s the purple-shaded area. These historical supports now offering us clear evidence of a resistance level here for the AUDUSD today.
So, it would be my expectation in the direction of the trend, which clearly this is a downtrend. We can take a trend line even from this high here. Connect it to this high. We can clearly see that this currency pair is in a downtrend. In the direction of the trend, you’re typically looking for resistance levels. You want the market to go up before it goes down because that provides lower risk and higher potential reward for any selling opportunities that you take in the direction of the trend.
Now, obviously there’s always opportunities to look for trend reversal and trend change, but until we really see clues to that trend change, we want to continue to focus our efforts in the direction of the trend, which, again, for this pair is a downtrend. So, we’re selling resistance. We’re selling as it rallies back higher to give us better investment for our money on the sell side. So, as it sits here, 0.8660, 0.8685 today into the purple zone, it’s my expectation that we’re looking to sell this currency pair and not buy it. Buying carries larger risk.
If you were to evaluate what the risk is for buying the AUDUSD right now, it would likely be down there all the way into the low-0.8500s, at the blue-shaded area at the very bottom of the chart. So, your risk is very high for buying this currency pair right now. On the flip side, if you’re looking to sell this into the purple-shaded area, into resistance, your risk becomes much smaller and your profit target, which is, again, that blue zone at the blue zone becomes much farther away. So, clearly we can see the downtrend, resistance into the purple-shaded area, and this becomes our selling opportunity with low risk.
Not no risk. There’s never a no-risk scenario, but it becomes a very much lower risk opportunity to sell the AUDUSD today rather than buying it. If you were thinking about buying it, what’s the profit target? Where’s your resistance target that you’re going to shoot for? Well, right now we’re pretty much there. If you would’ve bought it at the blue zone, down at the bottom of the chart, you would’ve targeted the purple zone. And it has not broken above that target, so there’s no reason to believe yet that it could continue to higher, until it breaks through that barrier that’s been created there at that purple-shaded area.
Let’s take all that information down to the 4-Hour Chart. Get a little bit more detail to this, and we can see historically, same purple-shaded area, same blue box that we see there for the past several months. We see the historical sports over here on the left offering us clear evidence of a resistance on the right. Until or unless it breaks above this purple-shaded area, 0.8685, 0.8690 or so, then we look for resistance and reversal to go back down for the AUDUSD in the direction of the overall trend.
If it clearly breaks above 0.8685, then of course your next resistance becomes this pink-shaded area, which is there closer to of course the longer-term trend line. In fact, it needs to be adjusted just a little bit. Let’s make sure the top of it is connected exactly to this resistance high right here. And so, there you could see a little bit higher is the red trend line. I’m not going to worry about that today, but as long as we stay inside the purple zone or below it, we look for reversal to go in the direction of the trend. Only if it opens and closes, breaks out above 0.8685 do we look for the continuation higher.
Now, even if you were thinking, “Well, it’s had a pretty decent push back higher. It’s time for reversal. It’s been going down for a long period of time.” Even if you were on that mindset that it needs to go back up and we’re looking for reversal, again, I think it needs to dip to support. Just like the opposite of what I’ve been mentioning about selling this paid, selling resistance to find low risk, high reward opportunities. In the other side of it, if you’re looking to buy it, you want to buy support. So, it needs to likely go down potentially to another support level, which could be here into the 0.8618 level. You could see that resistance right here becoming potential support. You could see it all the way back down at the bottom.
So, I think it needs to go down before it goes back up or it needs to go up before it goes down, which it’s already done. Let’s take Fibonacci from the last high right here at the yellow-shaded area. The last high we see right here, down to the current support low. Here’s something else that will be interesting for you if you’re looking to take a trading opportunity here on the AUDUSD. The .382 Fibonacci retracement level. A little hard to see the number over here. It’s right around the 0.8680-level. You could see the dashed line coming through the purple-shaded area. That’s where our current resistance is at the .382 fib of this leg of the downtrend.
So, again, as long as it stays underneath there, that’s your resistance. That’s your selling opportunity. You’re looking for it to target lower levels, back towards the 0.8600-level or potentially all the way back down towards the mid to low-0.8500s, the blue-shaded area at the bottom of the chart. Your risk is low. Your risk is that it breaks above 0.8685 and goes back up to the pink zone. The pink zone there, 50% retracement level of this downtrend. .618 sits at 0.8770, just above the pink zone. So, clearly that is the next resistance if and when it breaks above the purple zone, but for me and the direction of the trend, selling rallies to resistance becomes our main focus for the day on the AUDUSD.
