The Australian dollar’s recent advance has carried the pair into critical resistance with the aussie testing the topside range of a multi-year long technical formation. Despite the fact that recent economic data does show improving conditions domestically (last night’s stronger than expected employment data, trade balance data earlier this month and the RBA holding off on further rate cuts), technically the pair looks poised for a correction lower with a break back below the 1.04-handle offering clearly defined scalp targets. Note that Credit Suisse overnight swaps are still factoring in 57% chance of a 25bps cut next month with twelve month expectations calling for an additional 58bps in cuts. A continued sell-off in broader risk assets would only reinforce this move with our medium-term target eyed at 1.0330 against the monthly high at 1.0480.
AUDUSD Daily Chart
A look at the encompassing structure sees the AUDUSD continuing to trade into the apex of abroad triangle formation dating back to late 2011. The advance off the October lows at 1.0150 was well bid with the pair reaching exhaustion at the confluence of trendline resistance dating back to the February highs and the R1 monthly pivot at 1.0480. We reserve this level as our topside limit with a breach above shifting our focus higher towards the 1.05 and the R2 monthly pivot at 1.0575. Failure to mount the 61.8% retracement taken from the September decent at 1.0444 (on a close basis) further reinforces the idea of the pair being over-stretched at these levels with our primary objective eyed at the confluence of the 38.2% retracement and the 200-day moving average at 1.0335. Note that daily RSI has continued to hold below the 60-threshold offering further conviction on our directional bias.
AUDUSD Scalp Chart
The scalp chart shows the AUDUSD trading into near-term resistance at the 78.6% Fibonacci extension at 1.0440. Note that this level confluences with the key 61.8% retracement taken from the decent off the September highs (as seen on the daily chart) and is likely to offer strong resistance for the pair. Interim support targets are seen at the 1.0418 intra-day pivot backed by the 61.8% extension at 1.0396, 1.0365, and the 38.2% extension at 1.0335. A break below this level risks substantial declines for the aussie with targets seen lower at the monthly pivot at 1.0313 and the 23.6% extension at 1.0296.
A breach above 1.0440 targets subsequent topside resistance at 1.0470. A breach above the monthly high at 1.0480 invalidates our near-term bias with such a scenario eyeing the 100% extension at 1.0495, 1.0520 and the 123.6% extension at 1.0550. A daily average true range of 68 pips yields profit targets of 17-19 pips per scalp depending on entry. Should ATR pullback dramatically, adjust profit targets as need to ensure more feasible scalps.
*We will remain flexible with our bias with a breach above 1.0480 eyeing subsequent resistance targets. It’s extremely important in these market conditions to give added consideration regarding the timing of intra-day scalps with the opening ranges on a session & hourly basis offering further clarity on intra-day biases. Note that inflation data out of China later tonight may spark added volatility in the aussie and as such, traders are advised to use caution and adjust position size accordingly as we head into the print.
Key Threshold Grid
Entry/Exit Targets
Timeframe
Level
Significance
Resistance 1 Target
30min
1.0440
78.6% Fibonacci Ext
Resistance 2 Target
30min
1.0470
Soft Resistance
Topside Limit
30min
1.0480
November High
Break Target 1
30min
1.0495
100% Fibonacci Ext
Break Target 2
30min
1.0520
Soft Resistance
Break Target 3
30min
1.0550
123.6% Fibonacci Ext
Support Target 1
30min
1.0418
Soft Support
Support Target 2
30min
1.0396
61.8% Fibonacci Ext
Support Target 3
30min
1.0365
50% Fibonacci Ext
Bottom Limit
30min
1.0335
38.2% Ext / 200DMA
Break Target 1
Daily
1.0313
Monthly Pivot
Break Target 2
30min
1.0296
23.6% Fibonacci Ext
Break Target 2
30min
1.0270
Soft Support
Average True Range
Daily
68
Profit Targets 17-19pips
—Written by Michael Boutros, Currency Strategist with DailyFX.com
To contact Michael email mboutros@dailyfx.com or follow him on Twitter @MBForex
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