AUDUSD On The Cusp?

BarroMetrics Views: AUDUSD on the Cusp?

It seems to me the AUDUSD is offering great opportunities if you are trading the weekly or monthly trend.

FIGURE 1 shows the  5-day (weekly) and 18-day (monthly) situation. We see a pause in the 18-day that will retrace to the .9800 to .9875 area if it turns to full development; if the 18-day remains ‘a pause’, we see a completed or about to be completed 5-day development.

Let’s turn to Figure 2 (240-min) for a DNA of the 5-day swing.

Here are the salient points:

  1. At green 2, we see a Spring Change in Trend Pattern. The minimum target is the Primary Sell Zone .9339 to .9282; with the most likely being the .9318 to .9282. The expected target in upside breakout above .9339, confirmed by a bullish conviction close above .9407 looking for .9800 to .9875.
  2. At blue 3, we see the minimum target attained but sellers (supply) being strong enough to push prices to the Value Area Low.
  3. We then have another attempt for an upside breakout that again fails.
  4. When prices move to .9100, we have what I called a Failed Spring Change in Trend. This is a sign of weakness. For me, it suggests that a downside breakout would be successful and is one of the few situations I would initiate a position on the breakout rather than wait for the retest.
  5. If, instead of breaking down, the AUDUSD heads North and again challenges the Primary Sell Zone, we have what I call the Rule of 4: on the fourth swing attempt, a market ought to break through. If instead of breaking up, we see a successful rejection, this would suggest a breakout of the opposite boundary of congestion – in this case, a successful test of the Primary Sell Zone would suggest a downside breakout below the Primary Buy Zone and a continuation of the 18-d swing line down.
  6. I don’t expect the GDP, due out at 8:30 am EST, to have much affect on the AUDUSD – it should come in within the expected 0.2% to 0.4% (old calculation). But, a caveat: I have no idea how the new mode of calculation will affect, if it does at all, the market’s response to the GDP; so, we may see some surprises.
  7. I do expect the FOMC decision, due out 2:00 PM EST, to be bearish for the USD. If so, then we should see the AUDUSD rally.

In any event, the strategies are clear:

  1. Sell a downside breakout below .8997 without waiting for the retest.
  2. Buy an upside breakout above .9407 on a retest;
  3. Sell, should the AUDUSD attain .9339 to .9282, and then fail. I would treat a 240-minute bearish conviction bar as the sign of failure.
  4. The target for the breakdown is the .8231 to .8065 zone; the target for the break up is the .9875 to .9800.
  5. The stop for each strategy cannot be yet determined; the most logical place would be the most recent swing extreme prior to the sell or buy signal.

audusd-05d-18d.png

FIGURE 1 AUDUSD DAILY

audusd-240-min.png

FIGURE 2 AUDUSD 240-minute

6 thoughts on “AUDUSD On The Cusp?”

  1. Hi Ray,
    1. For (4), to initiate a position on the breakout rather than wait for the retest,
    a. How far away from the breakout to in order to enter a contract?
    b. How to determine the stop-loss level?
    c. How to determine the profit target?
    d. What Contract Sizing method could be the best for those “few situations”?

    2. Last month, RBA’s Stevens has said that A$ was “too high”. So, from the fundamental and technical analyses, by 31 Dec 2013, what could be the likely lowest AUD/USD price level?

  2. Hi Ray – out of interest does the Australian rate cut and subsequent rally impact this analysis? As analysis is structural in nature and the breakout below .8997 followed the original plan I’m guessing not? Would you generally revise this analysis on the basis of new information such as a rate move?

    Thanks, Ryan

  3. Hi Paul

    1a) It’s not a question of price but the way the market moves past the breakdown point, that I consider important.
    1b) You should know the answer to that one – a number of techniques e.g acceptance above the PBZ; above the swing high etc.
    1c) That depends on context.
    1d) Goes to the idea of ebb and flow. I used cover this in the Barros Swing seminars – beyond the scope of the blog

  4. Hi Ryan

    1) rate cute: the market reaction to the cut is what would be important.

    2) Yes. I review analysis based on new info.

  5. Hi Ray,
    1b) Did you, or Peter Steidlmayer traded successfully without using stop-loss?

    So often, the stop-losses at acceptance above the PBZ, above the swing high etc. are being triggered and then the downward trend continues immediately!

  6. Hi Paul

    Pete taught to exit positions when conditions change.

    The problem is most newbies have an infinite capacity for self-deception and substitute hope for reality. As a result, their trading fails to show a positive expectancy return.

    Placement of a hard stop prevents a loss from which a trader cannot recover.

    What you say in the second paragraph of course does happen; and given the nature of markets, it will happen no matter what stop technique you use.

    It’s not a perfect world – we traders work with best guesses. So, ….

    …what is the reverse option to a hard stop? Not to have an exit strategy? Then it takes only one trade to knock you out of the game.

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