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AUD/NZD Approaching All-Time High, Solid Sell

Last updated 2/19/2010 3:31 PM EST (GMT -5) 8 Comments

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FX360 Technical Analyst Staff

Technical Analyst, GFT

An exceptionally symmetrical bearish butterfly pattern is emerging on the AUD/NZD daily pointing to future major resistance near 1.2980. Generally, this type of price/time symmetry (127.2% of XA, 161.8% of BC, and 127.2% ABCD extension) adds to probability of at least a relatively brief reversal near this level making for good profit taking to the upside, and/or establishing a new medium-to-long-term short. Additionally, projected pattern completion comes in right around the all-time AUD/NZD high of 1.2969 adding even more pattern strength. Based on time symmetry characteristics of the Gartley pattern (relation between times of XA vs. AD) still has a few days to complete, but it's definitely a critical level to watch and will likely produce a solid short setup in days to come.

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Comments (8)

Houston Jake

February 19, 2010 at 09:33 PM ET

Wha would invalidate this trade? And if the level of 129.69 is broken to the upside would it be logical to go long to a new high short term?

rstojsic

February 22, 2010 at 10:51 AM ET

Great questions, Jake. Trade invalidation depends a bit on how much risk one is willing to take in which case confirmation patterns on shorter timeframes come in quite usefully. I will provide a much more clear and direct answer if/when prices approach pattern completion, but the best I can do for now is refer to shorter time frame patterns. They can not only help confirm the entry, but can also point to longer timeframe pattern failure. These patterns no matter what time frame all carry the same general warning signs---gaps and/or wide-ranging bars prior to pattern completion. If a confirmation pattern is found it tends to significantly reduce the risk which in turn creates a far more favorable risk/reward. In other words they help to increase probabilities but if wrong also help cut losses more quickly (thus the reason I held off on specifics for now just until we get closer to pattern completion in order to better assess the exits).

rstojsic

February 22, 2010 at 11:00 AM ET

and yes, if 129.69-80 is broken then it would be logical to expect a potentially strong continuation move to 161.8% of XA near 1.3157, but actually going long on a break out like this (or any type of trade for that matter) really depends on the risk/reward in terms of whether it is logical or not.

engin

February 20, 2010 at 02:03 AM ET

its not all time high.all time high is 1.4220 if it holds above 1.28 then target would be 1.3425

altr

February 20, 2010 at 03:07 PM ET

While correction is possible it will probably be shallow and short-lived as I tend to strongly disagree with you on this one. I understand that you are not doing Elliot Wave analysis, but what is happening now counts well as impulse 3rd of the 3rd wave that should propel the price to 33-34 area. This is 4th or 5th assault to the multi year high which, as I understand it, means that it wants to break it rather than bounce off. From the chart it is obvious that the bullish pressure has been high from 2009. On the side note, your ABC pattern really looks like ABC double failure flat correction with clear 3-3-5 structure.

rstojsic

February 22, 2010 at 11:24 AM ET

That may be the case, altr, which is why I pointed this out as a critical level to watch and not an actual trade as of yet--as I mentioned in this post, ".... [converging resistance] adds to probability of at least a relatively brief reversal near this level". However, even if this potential correction is shallow and short-lived as we both suggest it can still result in an excellent trade based on risk/reward as I’m sure you'd agree. For example, as prices reach this resistance we may find a confirmation pattern on a shorter timeframe. Hypothetically, this may result in a target of let's say 50 pips which may only take a couple hours (shallow and short-lived). But that same shorter-term pattern may also allow us to cut down our risk to let's say 25 pips. My experience has taught me to be less concerned with being "right" and focus on being profitable (and sustaining profitability over time), which is why I constantly stress consistent, disciplined risk/money management. Anyway, your feedback is always appreciated so thank you and good luck!

rmsuleman

February 21, 2010 at 09:01 AM ET

Mate, you need to look further on your analysis. All time high is in 1.42 area ...

rstojsic

February 22, 2010 at 10:26 AM ET

thanks, this is being looked into. i zoomed all the way out on a monthly but my data only goes back to 2003 in which case the aud/nzd peaks at 1.2969 in June 2006

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