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I’m going to begin the day today on the Australian Dollar versus the US Dollar [AUDUSD]. Now, we’re starting out here on the Daily Chart. We have several different trends that we want to speak about first thing, before going down to the smaller compressions. Here, on the Daily Chart, we can see on the left-hand side that we were in a downtrend. We fell from up here into the 1.0500s all the way back down here into the 0.8800s.
Taking Fibonacci of this previous downtrend, we then began a retracement back to the 50% retracement level. The 50% retracement level of this downtrend, the previous downtrend, sits at 0.9713, which is right at the bottom of this top blue-shaded area. The blue-shaded area is where the 50% retracement level is. So, we could see that the market retraced back to the 50% retracement level of this previous downtrend.
Now, zoom in a little bit and we can look at that uptrend that began down here into the 0.8800s, making that climb from down here into the 0.8880s all the way up there into the 0.9700-level, capping out that 50% retracement level, and now beginning a fall back down. Well, what’s very interesting about this fall back down is it’s duplicating, or replicating, the previous dip that this currency pair took within the overall uptrend. So, since bottoming our down here into the 0.8800s, it made this first leg up here into the 0.9500-level, made a dip back to the pink-shaded area into the 0.9300-level, second leg of the uptrend, breaking through that black trend line, and pushing all the way up here into the 0.9700s and now making another dip back to the yellow-shaded area here, into the mid-0.9400s.
Now, the question of course will be: are we going to see a similar breakout, like what we saw the last time, where it broke above the pink-shaded area, broke above this black trend line, and began the second leg? Are we going to see a break above the purple-shaded area, a break above the black trend line, and a new high to be made above the blue-shaded area and above the 50% retracement level of the previous downtrend? Or are we going to see it hold underneath the black trend line, underneath this purple-shaded area, challenge the yellow-shaded area as support? Breaking through there, we’ll likely look for it back down here into the pink-shaded area.
So, two critical zones to watch today for the AUDUSD. The purple-shaded area and the black trend line and the yellow-shaded area as support. Those will be our breakout points. Above the purple-shaded area goes higher; below the yellow-shaded area goes back down again. Let’s take that information down to the 4-Hour Chart. And as we get down here to the 4-Hour Chart, we of course can see that same black trend line a little bit in more detail because we are down here on a smaller compression.
We see that same purple-shaded area here, on the 4-Hour Chart, highlighting our current resistance. Follow it back in time and you can see an area of consolidation or congestion back here, where the market hesitated for a period of time inside this same purple-shaded area. So, we obviously know that historically this purple-shaded area has shown resistance for this currency pair, and that’s what we’re seeing right now over the past several hours. We see the market holding under the low-0.9500-level. Looking for resistance there, a breakout above this purple-shaded area will begin the next surge higher, maybe back to this green-shaded area into the 0.9600-level, or further into the blue-shaded area back up into that 50% retracement level of the previous long-term downtrend that we studied on the Daily Chart.
So, all of that would be, of course, assuming that we break above the purple-shaded area. So, let’s go ahead and bring this arrow over here. Above that, we look for it to continue to pressure higher. As long as we stay below that purple-shaded zone and the black trend line, there’s potential for a fall back down towards the yellow-shaded area. Historically, again, we could see historical congestion, consolidation, inside this yellow-shaded area. And of course, on the left-hand side of the chart, there is many resistance back here on the left-hand side, which are now helping us identify support.
So, as long, of course, as it stays above that yellow-shaded area, as we’ve already seen for the past several hours, we find support here and a bounce back up towards the purple-shaded area. If, at any point in time, we see a change of that and it breaks underneath the 0.9415 or so level, underneath that yellow-shaded area, we likely look for a continuation of the downtrend. So, your setup today is just that.
If you’re looking to sell this currency pair in the direction of the current short leg of the downtrend, this is about your best opportunity here into the purple-shaded area to do that. Your stop or risk in any sell trades that you take right now is likely just above the 0.9550-level, above that purple-shaded area. So, if you decide to sell today, stop goes above the purple zone, because if it breaks above there, you don’t really want to stay in a sell any longer, because we’re likely, as I described, going back up in the direction of the previous uptrend. So, that is your first opportunity. A sell right now into the purple-shaded area.
Otherwise, if you’re looking for a confirmation of a breakout lower, you’d need to see a break underneath the yellow-shaded area. So, two sells today: purple-shaded area or under the yellow-shaded area. On the other side of the story, if you’re looking to buy this and you’re looking for a continuation of the previous long-term uptrend and you think we’re going to break through this black trend line, like we did the last time, if I zoom back out, I think here on the 4-Hour, over here on the left-hand side we could see that previous black trend line on the left-hand side.
If we think: “Well, I think it’s going to break above the purple-shaded area, break above the black trend line, and continue to pressure higher,” that’s what you’re waiting for. You’re waiting for it actually to break above it. You don’t want to make any assumptions that it’s going to break above it. You want it to go ahead and break, open and close above it. That gives you confidence that it’s going to continue higher towards that green-shaded area or higher. The only other opportunity to buy it, in this case, would be a dip back down towards the yellow-shaded area.
So, your black arrows that I have here on the chart give you your opportunities. Dip to the yellow zone, buy. Break above the purple zone, buy. Otherwise, you’re selling into the purple zone, breakout underneath the yellow-shaded area. Now, for the conservative traders, if you don’t want to trade based on the support and resistance here and you want to wait for that breakout, that’s perfectly fine. A breakout above the purple-shaded area or below the yellow-shaded area will likely be your next trading actions here on the AUDUSD.
Forex Black Book is a dark green color, so it’s not really all agreeing in the same direction. Of course we have a stronger bullish bias or uptrend bias because it’s green, but it hasn’t turned the brighter green color, showing the short and long-term trends in agreement. So, what we’d like to see over the next couple of days is that trend bar turn green, a breakout above the purple-shaded area, and a continuation back in the direction of the previous long-term trend for the AUDUSD.
