EUR/AUD Testing Critical Support, All-Time Lows

Last updated 1/7/2010 4:23 PM EST (GMT -5) 8 Comments

Forex Trading involves high risks, with the potential for substantial losses and is not suitable for all persons. Past performance is not necessarily indicative of future results.

Roger A. Stojsic

Technical Analyst, GFT

A solid, and potentially long-term, EUR/AUD buying opportunity is close at hand based on a daily bullish Butterfly pattern projected to complete near all-time lows right around the 1.55 handle. This major support adds to the odds of what may turn out to be a longer-term trend reversal, but based on the following fibonacci pattern convergence, allows for a solid risk/reward even in the near-term.

The EUR/AUD has been the topic of a couple recent posts, and seems to be flowing in accordance with typical geometric pattern characteristics. In addition to the major support, pending entry and exits are based on pattern completion based on the following pattern fib convergence...

There are several ways we can trade this setup especially in terms of stop placement. As it stands, our entry and exits are based on the pattern completeing near 1.55 with stops placed just below the all-time low of 1.5471.

However, there is also fib convergence and valid bull butterfly pattern completion down near 1.5283 based on the 161.8% ABCD extension at 200% XA support. This may present another buying opportunity if prices do continue to fall below our current 1.5435 stop. An alternate strategy may be to instead lower stops closer to 1.52 allowing for a bigger cushion, and perhaps even scale into the long position by adding to the buy if prices do in fact drop to around 1.53, but in the end i remind myself to "cut losses quickly, and let profits run." Although widening the stop may increase our chances of "winning" this trade, it will also significantly reduce the risk/reward. So, we may end up taking a couple stabs at this one which, as always, makes disciplned risk/money managment critical when determining position size.

Potential strategy: Buy if prices dip to 1.5555 with stop-loss at 1.5435 targeting 1.5797 (T1), 1.6166 (T2).

Comments (8)

NeoFX

January 07, 2010 at 05:13 PM ET

Interesting, I'll keep an eye out.

a quick word on yesterday's aussie/dollar blog........Well, looks like I had actually drawn those fibs on the daily AUD/USD correctly afterall. That's how I'd been taught to basically start from top/peak befor major trend line break (.9405 or A) down to the most recent low after the break (.8735 or B) and then wait for the C retracement, in this case right at the 78% fib level on yesterday's .9270 peak, or C (right to the pip). Now I'm riding it down.

Any idea if tomorrow's announcements may affect this pair to the point where it'd be better to sit it out till after the announcements?

Thanks Roger,
R

rstojsic

January 07, 2010 at 09:51 PM ET

hey neo, there's nothing wrong with using the fibs from AD by any means. it's just that the CD levels are also useful and oftentimes they coincide with one another due to the harmonic nature of these patterns and the specific fib levels used to define them. In other words, I first look at the more the more recent CD retracements and see if there is any confirmation, then look to the AD retracements but both are equally valid. In fact, this type of convergence is what these patterns are all about. Even though I typically look to enter at pattern completion and take profits at CD and/or AD retracements, the concept is the same. in this particular case, the 78.6% of CD had some historic confirmation which i why i pointed it out as something to consider as it came into play prior to the 78.6% of AD. Either way, i never meant to imply that using the fibs from AD is incorrect because I always consider these retracements in addition to the CD retracements especially when coming off such solid pattern completion (additional 38.2% prior trend restance at D) convergence at D). How you use these levels depends largely on the type of trader, and how risk is managed. Anyway, looks like you're in good shape so far so good luck!

rstojsic

January 07, 2010 at 10:14 PM ET

as for your question about tomorrows announcements :) .....I make it a point to pay zero attention to the news these days, so I have no idea how much of an effect it will have. I'm sure there will be plenty of movement as ususal, but how it may or may not affect the aud/usd is a question better suited for boris or kathy (they ususally post a pre-non-farm repor if i'm not mistaken) Here's the thing, I cant give you a straight answer (nor can any other respectable trader) because in the end no one knows what the market is going to do no matter how convincing the may sound. In fact, it really doesn't matter how the market will react...then only thing that matters is how your going to control your risk because that's the only thing you can control. This is one of the problems with trading around the news because slippage can sometimes wreak havoc on over leveraged positions because that takes away some of that control. The way I look at it is that regardless of how the market moves I have my exits and a risk/trade managment strategy planned out in advance so it really doesnt matter. For example, if I'm in a position that is profitable my targets act as risk managment levels meaning if i hit a target i first look to tighten my stops (first to break-even, then look to lock in profit). this way, as price unfolds i can determine when/where to adjust my stop or when to exit. So, if i was in a profitable position going into a major news announcement i would want to at least make sure i don't turn that winner into a loser so if possible i would at the very least bring my stop to break-even and take on the news risk-free. At this point you should have some logical profit targets pegged out, and I would make sure you have a logical plan (for example, based on fib support/resistance) for how you will manage that stop. I think this is one of the main reasons behind the mantra, "worry about your losses, and your profits will take care of themselves." Hope this helps. :)

hsbc

January 07, 2010 at 07:32 PM ET

just wondering if you have any views on eurchf?

rstojsic

January 07, 2010 at 10:21 PM ET

not much at the moment.

Doobp

January 08, 2010 at 07:33 AM ET

u will know it in 4 hours time.. looks like SNB is gonna let the market adjust itself unless it gets mid 1.47 or sub 1.47.

Vespones

January 08, 2010 at 01:25 AM ET

Hi Roger,

It seems pair reached bottom at 1.5582, do you recommend enter now at least with half size position or trade will be invalidated ?

Thanks

rstojsic

January 08, 2010 at 11:25 AM ET

nope, sticking to my guns

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