Critical AUD/NZD Resistance Near 1.27...

Last updated 1/18/2010 2:43 PM EST (GMT -5) 0 Comments - Add your comment

FX360 Technical Analyst Staff

Technical Analyst, GFT

A potential AUD/NZD selling opportunity may present itself this week as we have both an emerging bearish Gartley pattern along with an intertwined bearish butterfly pattern both projected to complete near 1.27 based on the following fib convergence....

Watch out for any gaps and/or wide-ranging candles (2-3x's average) prior to the projected entry as these are signs that a continuation move may be in progress which may invalidate this setup.  To clarify, this doesn't mean that prices will climb to pattern completion at point D. Rather, this setup suggests that if prices do in fact climb and the pattern completes, then there is a higher probability for at least a near-term drop as the multiple levels of Fibonacci convergence strengthen the potential for resistance. If triggered, a stop-loss of 1.2742 will be placed just above projected pattern completion at 78.6% of X1-A. Under normal circumstances, a move above this level without a correction down to the initial profit target (T1) would result in pattern failure thus increasing the odds of a potentially strong bullish continuation up to 127.2% of X1-A. However, seeing as how this pattern is projected to complete near all-time AUD/NZD highs this is something we'll want to take a closer look at if/when prices do climb above point B near 1.26. Otherwise, if prices drop below point C (1.2433) before reaching the projected entry, then this setup is no longer valid. The initial profit target of 1.2615 (T1) represents a 38.2% retracement/correction of the projected CD leg at which point stops will be moved to break-even. A secondary target of 1.2510 (T2) sits just above the 78.6% correction of CD although there may be additional targets based on price action prior to each target especially considering the proximity to historic AUD/NZD highs.

Potential strategy: Sell if prices rally to1.2691 with stop-loss of 1.2742 targeting 1.2615 (T1, stop to break even), 1.2510 (T2).

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