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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 could see that this currency pair has been in a downtrend over the past several weeks. We go all the way back to October 23rd at the top of the chart, into the 0.9750-level at the highest high; and since then we’ve been falling with consistent lower highs and lower lows along this blue trend line.
Over the past few days though, we’ve gone into a bit of congestion or a channel down here at the bottom right-hand side of that trend. Previously, the uptrend going from the lowest low to the highest high on the chart, I have measured with the Fibonacci measurement tool from the low to the high. That puts the .786 fib retracement level right here at 0.9040, and that’s the bottom of the yellow-shaded area, showing us the support within that period of congestion or that channel that we’re seeing right now.
Above that, into the blue-shaded area, or just to the top of the blue-shaded area happens to be the .618 Fibonacci retracement level at 0.9193 of that same previous uptrend over here on the left-hand side of the chart. So, we’re finding resistance along the .618, support into the .786 fib, highlighted with the blue-shaded area for our resistance, and the yellow-shaded area as our support within this period of congestion or this channel.
Well, we have two real options here that we can look for trading in this period of congestion. We could trade within, selling at the top or buying at the bottom. Selling into the blue-shaded area or buying into the yellow-shaded area, or we simply wait for a breakout. Well, if you take some historical context downtrend. We could see the market came into a downtrend, went into a similar period of congestion between the yellow and the purple-shaded area up here at the top. Eventually, breaking underneath it and continuing all the way back down to the pink-shaded area.
So, we could look for a very similar breakout – what we saw up here at the top left. Then it went into a period of congestion or a channel back down here above the pink-shaded area, attempted to break above it, challenging back into the trend line, back into this yellow-shaded area, and then, once again, broke to the bottom side and continued to pressure down here to the yellow zone. Again, here we are, into this period of congestion. There’s one of two opportunities here. It could break to the top side of the blue zone, push all the way back to the pink-shaded area, back to the blue trend line, and then fall back down, or it could simply break underneath the yellow zone and continue to pressure lower.
In the direction of the trend, our opportunities are this: we look for selling into resistance. First off is the blue-shaded area. We could look for selling opportunities underneath the 0.9190-level, which happens to be the .618 fib of this previous uptrend. We could look for sells into the blue-shaded area, looking to target back to the yellow zone or back to the lowest lows, all the way back down into the 0.8800s, or we look for a new challenge of the blue trend line. It could even be all the way up here into the upper 0.9200s and the pink-shaded area, which happens to be into these historical supports over here on the left-hand side. So, those are your two opportunities for selling: into the blue-shaded area or into the pink-shaded area. Otherwise, we look for a breakdown of this yellow-shaded area, a breakdown of the 0.9040-level, and a continuation of the current downtrend.
Now, if you’re looking for reversal indicators and buying opportunities. You’re going to be looking for just the opposite. Buying into the yellow zone becomes your lowest risk, highest potential reward buying opportunity. You look to target back to the blue zone. A breakout above there, we go higher. The other opportunity to buy would be the breakout above the blue-shaded area and likely above the 0.9190, 0.9200-level, and the blue-shaded area that you see here on the chart. If we get above there, we look for a challenge back into the 0.9280s, the pink-shaded area, and the blue trend line. Of course, above that, we’ll look for a continuation of the rise for the AUDUSD.
Let’s take all of that information down to the 4-Hour Chart, and there is our channel. There’s our congestion down here between the blue and the yellow-shaded area. It’s been doing this for quite some time now. Again, your opportunities to trade within the congestion or buying into the yellow zone, and you can see that’s been profitable three times now. One test here, second test, and now the third test. It’s been profitable buying from the 0.9060-level. Now pushing into 0.9120, targeting back towards the blue-shaded area, which is into the 0.9150-level.
Now, as it approaches the blue-shaded area. If you’re going to trade within this period of congestion, again, your opportunities to sell it here. 0.9150 to 0.9190 – that’s the blue zone that we have highlighted here. We could see the last couple of times, I’ve found resistance right around the 0.9150s. So, if you’re looking for an opportunity to scale into a sell, that becomes your opportunity. As close as possible to the 0.9145, 0.9150-level. Then you look to target back down to the yellow zone. A break under the yellow zone continues that bearish price action. Your risk on any sells into the blue-shaded area is that it finally breaks above 0.9200 and continues to pressure towards the pink-shaded area. So, this is your first opportunity to sell it, as it approaches the top of the congestion, into the blue-shaded area.
Today, as it continues to pressure higher, if you’re looking to buy this, I don’t think I would look to buy it at the current market, but maybe as it breaks above the blue-shaded area. Getting above 0.9190, 0.9200. Above this blue zone. Above these recent highs here. Then you look for it to continue to pressure higher. And you could even place a new trend line right about right here, and I’ll change the color of this one to a different color. Let’s make it red. We could even change this trend line to a red, and I’ll also place one right about right here so we can see this. That’s the wrong line. Let me get another red line here. Let’s get this red line, and we can place another one right here.
So, if you take a look at where this red line is at the bottom and our diagonal red line here, you might associate this as a descending triangle. A descending triangle implies that the market will more likely look for a fall as it rallies into resistance. So, challenging into the blue-shaded area, challenging into the top of the descending triangle, this is relatively pointing in the direction that we expect the breakout of this congestion. So, it’s my expectation. With the red trend bar with the Forex Black Book implying bearish bias, with the descending triangle, and us approaching the top of this congestion area, I would expect that your most likely scenario here for the day today – the setup for the day today – is selling into the bottom of the blue zone, into the top of the triangle, looking to target back to the yellow zone as your initial target. Beyond there, you look for a continuation of the downtrend. Your risk in this scenario is that it breaks above 0.9190, 0.9200, and your stop placement should be likely above the highs here at the top of that red triangle pattern, looking for that to be the risk. If it breaks out above here, flipping the position to go back in towards the 0.9280s for the AUDUSD today.
