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I’m going to get started today on the Australian Dollar versus the US Dollar [AUDUSD]. Starting on the Daily Chart, this currency pair has been in a downtrend for quite some time. We go all the way back here into October 2013. A few months ago, where we capped out at the highs into the mid-0.9700s, top of the Daily Chart.
Ever since then, we’ve seen a continuation of the downtrend. Lower highs and lower lows defining this downtrend. Through the life of the downtrend we’ve seen several opportunities where this currency pair went into a period of congestion or ranging. And I’ve highlighted those areas in the orange boxes all the way down. So, we can see it went into a period of congestion, broke in the direction of the trend. Then it went into a period of congestion again. Then we broke in the direction of the trend. Again, here, in between the 0.9065/0.9070-level and the 0.9150-level – between the pink and the blue-shaded area – it went into that period of congestion and broke out. Went down, went into congestion again, tried to rally higher, and broke down in the direction of the trend all the way down to the bottom, into the mid-0.8600s.
In the most recent days, of course we’ve seen the market bouncing around and in a period of congestion again. Today we see a little bit of a change, where the market is now trying to challenge the bearish trend line. The bearish trend line – the black trend line – comes from the highest high, connecting with this dominant high – this major high that we see within the downtrend. The last attempt it made to break out of this trend, and then began that next leg down.
So, I’ve connected that trend line to that last high, and we can see today challenging that bearish trend line here into the upper-0.8800s, towards the 0.8900-level. Follow that area back. In fact, I can go ahead and just pull this orange-shaded area over. We could see we’re right in between the yellow and the green-shaded area. This is this orange-shaded zone between the yellow and the green. Historically this has been a period of congestion and support.
Follow it back here; you see this support here. You could even follow it farther back to the left-hand side of the chart. Far left-hand side of the chart, the market just peaking under the green zone, finding support and went back up. So, there’s support back here, there’s support in this area, and now we’re finding resistance underneath that support. Staying within or under this orange-shaded area and under the green zone, I expect there’s potential resistance underneath the trend line and underneath this orange-shaded area, and the market will likely go down in the direction of the trend.
That’s as long as it stays underneath this zone of resistance. If we see a final breakout above here, above the green-shaded area, and above the 0.8955-level, we’re likely taking a push into the next area of resistance, which will be this pink-shaded area into the low to mid-0.9000s. So, green-shaded area very critical today for the AUDUSD. Staying underneath it, potential to go back down in the direction of the trend. Breaking above it, we go back higher.
Taking it down to the 4-Hour Chart, I’ve also taken Fibonacci measurements from the high you see here on the 4-Hour, which is where the black trend line connects – top left-hand side of the chart – to the lowest low. So, taking Fibonacci high to low puts the .618 Fibonacci retracement level at 0.8922. That’s at the very bottom of the green-shaded area. So, right here there’s a dashed blue line and you can see that’s the .618 fib of this previous downtrend.
So we see Fibonacci here. We see historical support and resistance. We can see the trend line coming here. So, this is a critical decision point today for the AUDUSD. Staying within or underneath here, we’re likely looking for a turn back in the direction of the trend. Again, breaking back above here, we look for the continuation higher.
Now, that being said, there is support for this currency pair right now into the yellow-shaded area. We could see support on the left-hand side of the yellow-shaded zone. We could see some resistance in here. So, for the day today, the intraday today, this yellow zone will be our support. So, any sells you take here, you need to protect profit as it reaches into the yellow zone. That’s into the mid-0.8800s, down here close to 0.8860, 0.8850, 0.8840. And then, if it breaks underneath the yellow-shaded area, your confidence increases that it’s going to continue to pressure down in the direction of the trend, at least back down here towards the mid-0.8700s and the purple-shaded area as our next area of support.
So, the green and yellow-shaded area are major areas of support and resistance. A break above the green zone, we’re back to the pink zone, into the 0.9000s. A break below the yellow zone, we’re back to the purple zone at the bottom into the 0.8770s or so. This will be our critical decision zone today. If I just move the orange-shaded area out of the way, you can see the green and the yellow-shaded area clearly as our support and resistance today.
Opportunities to trade. Lower risk, higher reward opportunities come on rallies into resistance for selling or dips into support for buying. So, if you’re looking for a buy in the direction of our current momentum, which has been bullish for the last couple of days. If you’re looking for a buy, then you want to see a dip back to the yellow zone. That gives you a lower risk. Your stop placements become lower, because right now I believe if you were to enter a buy right now for the AUDUSD, your stop is likely underneath 0.8825 and the bottom of this yellow-shaded area. So, that being said, your risk is higher now. If you wait for it to dip to the yellow zone, your risk becomes lighter or lower.
It doesn’t mean there’s no risk. It means it’s lower risk. So, if you’re looking to buy it, you want to dip back to the yellow zone to buy it. If you’re looking to sell it, of course the close it can get to the green-shaded area, the closer it gets into the low to mid-0.8900s, the green zone becomes a lower risk, higher reward opportunity to sell it, because as it reaches there – I would expect right now, if you’re looking to sell it, your stop is likely above this green-shaded area and the 0.8955-level. The closer you get there, the lower that stop. Then, if it turns around, you’re targeting back to the yellow zone or possibly back down to the purple-shaded area at the bottom of the chart.
So, lower risk, higher reward will come into the green zone or into the yellow zone, whether you’re buying or selling today. And clearly a breakout of either one of these – above the green zone or below the yellow zone – becomes a sell or buy opportunity as you look for continuation of the current trend or momentum for the AUDUSD today.
