Bears Beware...AUD/USD at Critical Support

Last updated 7/2/2009 1:15 PM EST (GMT -5) 5 Comments

FX360 Technical Analyst Staff

Technical Analyst, GFT

The AUD/USD dropped like a rock off the heels of some major fundamental announcements today consolidating near critical support near 0.7940. Considering a buying opportunity now may seem counterintuitive, however, prices currently sit near daily trendline support as well as the completion of separate, but intertwined, bullish Gartley and butterfly patterns. These two recently completed patterns are defined by a shared bullish 127.2% ABCD extension pattern (where CD is 127.2% greater than AB) coming in at 127.2% of X2-A (giving us a bullish butterfly) and 61.8% of X1-A (giving us a bullish Gartley).

Now that prices have settled/consolidated near pattern completion at point D, we may see at least a temporary bullish reversal. If prices drop below current support, we may see a potentially strong bullish continuation down to the next level of converging fib support near .7870 (see 1hr). Even though the odds may arguably be more in favor of a drop, the current setup allows for a solid buying opportunity on excellent risk vs. reward.

That said we are buyers of the  AUD/USD at current levels (long at .7945) with stops just below today’s low at .7932. The initial profit target of .7999 (T1) sits just below the 38.2% retracement of CD while the secondary target is set just below 78.6% of CD (also 61.8% of AD) at .8062.

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  • Daily Chart - Near trendline support
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  • 1hr Chart - Bullish Gartley and butterfly pattern both complete at D

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Comments (5)

riacco

July 02, 2009 at 02:39 PM ET

Sounds like a great risk reward, bought in at .7948 and stop at .7928.
Time to listen to what Obama will do to the trade and markets.
Thinking markets still want to go up.

Qin

July 02, 2009 at 03:10 PM ET

Hey, Roger
Thank you for the advice. I just long AUD/YEN....
I think Yen has showed its weakness and if AUD/USD goes up, AUD/YEN maybe more profitable.

What do you think about it?

Best regards
Qin

S_FX

July 02, 2009 at 04:55 PM ET

riacco, I think you should have given it a bit more breathing space, .7928 might be a bit too close considering the large candles prior to the entry point...stochastic and rsi have been in the low areas for quite some time now but it seems like it wants to test the .7932 area again before the push up...Brad earlier had the entry point at .7976 but due to steep CD leg momentum was still quite high...anyways wish you all the best, i'm in the same trade but going to give it few more points to breathe :)

Big Weir

July 02, 2009 at 07:02 PM ET

I do see another potential entry at the 88.6 around the 7840-20 area, which is a 200.0 abcd and 314.0 or pi, cd extention. should the 786 at 7870 not hold.

Roger what are your thoughts on this?

The Mint Man

July 06, 2009 at 06:35 AM ET

Sounds like a good trade.... remember that tomorrow is the RBA meeting with rates mostly predicted to stay on hold, this outcome should help with the trade. If rates go down though... look out!

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