I remain fundamentally bearish on this pair, given the rate divergence with the FED (RBA cut its rate recently and might cut again this year while FED is expected to hike it around the summer). The RBA price target for this pair is 0,7500 (some 250 pips lower than the current price). Recent commentary by governor Stevens was less dovish than expected which led to a small rally during the last Asian session. Zooming out a bit, the last two weeks price action has been more or less in consolidation, which gave us a couple of interesting and profitable opportunities. Linked under “Related Ideas”, you will find the last two trade candidates for his pair (one on an ascending triangle, one on a harmonic price pattern) both of which played out profitably.
We now have a new price pattern in development that might lead to a concrete trade setup. A potential head & shoulders (H&S) is forming on the 30M timeframe and PA already travelled 60% from the top of the right shoulder towards the neckline. The market tried three times to go higher and failed, so chances are it will now head lower. There are several ways to trade an H&S pattern, from more aggressive to more conservative. I enter trades conservatively, with additional confirmation, so before I would enter the trade, the following steps would have to play out first: (1) completion of this reversal pattern (2) break of the neckline to the downside, (3) retracement back into the neckline and (4) a clear sign of reversal upon testing the neckline (which should then be resistance).
If these four steps play out as described I would enter a short. SL would go 10 pips behind the neckline. TP1 = support level at about 50% towards TP2 and TP2 is derived by extending the distance between head – neckline in the direction of the breakout. I should mention the additional risk that Monday is a US bank holiday, reducing the volume of transactions.
There are 72 pips to be made (if this pair follows the script) and the trade has an excellent reward – risk ratio of 7.1!
UPDATE: Price never completed the pattern or broke the neckline, so there was no entry signal for this trade. No problem, nothing was risked and nothing was lost. On to the next trade!
We now have a new price pattern in development that might lead to a concrete trade setup. A potential head & shoulders (H&S) is forming on the 30M timeframe and PA already travelled 60% from the top of the right shoulder towards the neckline. The market tried three times to go higher and failed, so chances are it will now head lower. There are several ways to trade an H&S pattern, from more aggressive to more conservative. I enter trades conservatively, with additional confirmation, so before I would enter the trade, the following steps would have to play out first: (1) completion of this reversal pattern (2) break of the neckline to the downside, (3) retracement back into the neckline and (4) a clear sign of reversal upon testing the neckline (which should then be resistance).
If these four steps play out as described I would enter a short. SL would go 10 pips behind the neckline. TP1 = support level at about 50% towards TP2 and TP2 is derived by extending the distance between head – neckline in the direction of the breakout. I should mention the additional risk that Monday is a US bank holiday, reducing the volume of transactions.
There are 72 pips to be made (if this pair follows the script) and the trade has an excellent reward – risk ratio of 7.1!
UPDATE: Price never completed the pattern or broke the neckline, so there was no entry signal for this trade. No problem, nothing was risked and nothing was lost. On to the next trade!
You don´t need to be a weatherman to know which way the wind blows - B. Dylan
