Standing Aside

BarroMetrics Views: Standing Aside

One of the more difficult concepts to teach is the idea that there are times we need to stand aside. Part of the reason lies with the hard-wired fear of missing out.

The AUDUSD is providing a classic example.

The Aussie is at long-term support. If this support gives way, I’d expect to see 0.67 to 0.70 fairly smartly.  But, the 18-day swing shows that the 18-d swing has retraced greater than any previous retracement. Usually this is at least a warning that we may see an `18-day change in trend.  In addition, the price actions suggests we may be seeing either:

  • some sort of congestion laying the ground to provide the change in trend; or
  • a continuation pattern that has been completed. We are now seeing the start of the directional move to the low 0.70s. 

For me, there are just too many ‘ifs and buts’. I’d prefer to see a clean breakout to the downside or see a downside failure to take a reduced size long position.

FIGURE 1 shows  .7484 as  the Maximum Extension. Acceptance below that would suggest continuation. The monthly chart shows that acceptance below .7700 would trigger a waterfall downside directional move.

I don’t like trading breakouts, but acceptance below 0.7484 would trigger a trade for me, given the context.

It’s worth noting that Friday is Non-Farm Payrolls with the impact of US freezing weather needing to be taken into account. We also have the RBA rate decision on Tuesday. I am in the consensus camp and looking for a rate cut.