Will .9100 Provide Short-Term AUD/USD Bounce?

Last updated 10/26/2009 5:06 PM EST (GMT -5) 1 Comments

FX360 Technical Analyst Staff

Technical Analyst, GFT

AUD/USD rates fell aggressively overnight, and are now approaching bullish butterfly pattern completion along with previously established minor support near .9100. In addition to the bottom of .9113 at the start of last week's trading, we have converging levels of Fibonacci support based on the following pattern emergence...

·          161.8% of XA (.9115)

·          200% of BC

·          161.8% ABCD extension

Under normal circumstances the gaps and wide-ranging candles (2-3x's avg.) currently found within the CD leg are warning signs of pattern failure as they often point towards a continuation move. This, of course, is not an absolute certainty, but in the realm of geometric pattern recognition we may interpret this as a sign that continuation move to the next level of Fibonacci/pattern convergence. For example, should gaps and/or wide-ranging candles develop prior to the completion of and AB=CD pattern we would then look to the 127.2% ABCD extension as the next level of potential support/resistance (where CD equals 127.2% of AB). Likewise, if warning signs are present prior to a 127.2% ABCD extension pattern, we would then look for a continuation to the 161.8% ABCD extension. Finally, a move beyond this most extreme 161.8% ABCD extension could then be interpreted as the most significant sign that a potentially strong continuation move is in progress.

So each of these potential pattern completion levels indicate a slightly higher probability of where the market may find temporary support/resistance in the future. This not only allows us to frame our entry and stop-loss placement, but also allows us to project future profit targets based on corrections (Fibonacci retracements) of the CD leg. The keys to this particular setup are that it already includes the most extreme 161.8% ABCD extension, which is also projected to complete at 161.8% of XA adding to the probability/strength of this future level of support. To top it all off, we can also see this pattern is projected to complete near previously established support all of which make the present warnings signs less of a concern and validate this buying opportunity.

Remember, even though there is sufficient reason to take on this trade there is always the inescapable chance of simply being wrong. That's why it's so critical to think in terms of probabilities and play the numbers game through disciplined money/risk management (where position size is adjusted so that only a relatively small percentage of total trading capital is put at risk on any single trade no matter how attractive). One last thing to keep in mind is that because this pattern is so close to completion and showing some signs of consolidation we may want to check for any upcoming key fundamental announcements .

Potential Strategy :  Buy AUD/USD at .9119 risking .9094 targeting .9165 (T1), .9205 (T2)

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Comments (1)

::EX::

October 26, 2009 at 07:40 PM ET

Thank you. I have to thank you one more time that getting help from your post I have seen some good trades.
I am learning to see the way you see the market....still have to study a lot the formation of pattern with extension fib levels.

Very knowledge able

USD/JPY is facing a lot of resistance pushing towards 92.50.

GDP figures are coming out this week as well.

I think so we might see dollar gaining

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