AUDUSD: Bullish and Bearish Scenarios

FX:AUDUSD   Australian Dollar / U.S. Dollar
Last week the main event for the Aussie Dollar happened on Tuesday, when the RBA cut the rates to a record low of 2%. After a quick spike down, price started to rally a staggering 250 pips in the following two days, since the cut had been anticipated and the statement (mentioning improved demand, high employment and inflation in line with goals) was perceived as hawkish. The RBA did not indicate any further cuts in the coming months. On Friday the NFP came in without much deviation, which was good, but it failed to provide a clear direction for the Dollar Index as uncertainty over the Fed rate hikes remains (helped by a small miss on average earnings ) and this pair ended the week with a net gain of 100 pips.

The commodity linked Australian currency is now relatively neutral and this pair will find its direction based on the USD, however, be aware that Chinese data does have an affect on the Australian economy (due to their reliance on Chinese demand for export commodities ) and therefore on the strength of AUD. Saturday their cpi came out unfavourably and this is not yet reflected in the current price action. Also, Monday morning the NAB business confidence (a leading indicator of economic health) will come out which may help to give this pair a clear direction the for week to come.

On the technical side, price has been contained by the intersection of a 210 pip wide bullish and a 115 pip wide bearish channel on the hourly timeframe for most of last week. It tested the upper and lower trend lines of both these channels without choosing one over the other. Zooming out a bit we can see price trading smack in the middle of a symmetrical triangle and edging closer to the apex, indicating a breakout is due. A breakout to either side will determine the channel the pair is likely to stick to in the coming days. Finally we have a bullish Gartley pattern spanning both channels and completing on the lower line of the bearish one.

With so much going on my approach is to be patient, observe and choose my trade based on if… then… reasoning.

In summary, the following things could happen:
  • Price moves up and breaks to the upside of the symmetrical triangle. In doing so, it chooses the bullish parallel channel and I would expect price to gradually move to the upper channel line. I would go long after a break above and close above the triangle. There are 155 pips to be made in this scenario.
  • Price moves up but reverses at the upper trend line of the bearish parallel channel . This would be a classic example of sell the high and I would go short, with TP1 the lower triangle line and TP2 the lower channel line. There are 125 pips to be made in this scenario.
  • Price moves down and breaks to the downside of the triangle. In doing so, it chooses the bearish parallel channel and I would expect price to gradually move to the lower channel line. I would go short after a break below and close below the triangle. There are 60 pips to be made in this scenario.
  • For the last two scenarios there would be a potential follow up. Once price has reached the lower channel line, it will have completed a bullish Gartley . I would go long at the completion point and exit at the upper channel line. There are 100 pips to be made in this scenario.
I hope to have provided several valid trade ideas and areas where to enter those trades and where to exit. I did not plot entries; take profits or stops on the chart for all possible trades, as it would become unreadable. My advise to anyone looking to take one of these trades, would be to consult your own trading plan and apply the rules of entry, exit and risk management you normally use and are comfortable with. Good luck and may the pips be with you!

Please like this idea if you think its useful and / or leave a comment below.
You don´t need to be a weatherman to know which way the wind blows - B. Dylan
UPDATE: After a false breakout to the downside of the triangle, with PA sticking to the lower triangle line like glue, price gradually worked its way to the top of the bearish channel and broke to its upside as well as to the upside of the triangle, landing on the lower trend line of the bullish channel. This presented an excellent opportunity to buy the low in a bullish channel. Price then rallied a total of 230 pips, missing the top of the channel by 25 pips.
the 1.27D point suits the scenario better doesnt it
+1 Reply
Yes, that would place D a little lower and there would be more pips to be made with a slightly better reward risk. It all depends on the specific rules used. I know you tested the 1.27D extensively, so if you are comfortable with that by all means use it. Thanks for responding.
+1 Reply
FeelsFX JazzForex
anyway, great analysis
+1 Reply
Thank you, lets see if it can help us make some pips!
Very good post!
+1 Reply
Thank you for saying so, lets see what the week brings!
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