Buy AUD/USD on Reversal

The AUD/USD appears to be breaking upwards, breaching both resistance and a the medium term trend line. Fundamentals are less clear – many commentators are attributing recent weakness to anticipation of further interest rate cuts – a condition that was present for the last sixteen months. My take is that it relates more to USD moves.

Recent USD strength against Euro, and ongoing strength versus Yen,  is a more likely explanation for the fall in AUD. With G7 announcements (unfairly?) rounding on Yen weakness, we may be in for a face-saving round of USD weakness – at least that’s what the charts are suggesting.

AUD/USD – 4 Hourly

20130213 audusd

Note the simultaneous break of resistance and trend. (Resistance relates to activity in November and December on the daily chart- not visible on this chart). While oscillators are suggesting the pair may be overbought, the increase in volatility (check the widening Bollinger Bands) may see these conditions continue.

Regular readers will know that an attractive risk to reward ratio is a key component of my trading strategy. With potential for moves towards 1.0490 and then 1.0600, and a tight stop loss just below 1.0350, I’m looking at the following:

20130213 aud order

About michaelmccarthycmc

Chief Market Strategist - CMC Markets and Stockbroking Regular on ABC, BBC, Bloomberg, Channel TEN, CNBC, SBS and SKY
This entry was posted in Forex, Market, Trading and tagged , , , , , . Bookmark the permalink.

6 Responses to Buy AUD/USD on Reversal

  1. @JackieTheTrader says:

    Dear Michael, The subsequent price action to your posted chart shows AUD/USD rising to 1.0360 and then falling to 1.0318. Did you get stopped out?

    • Hi jackie – yes, stopped out – it was a tough night all ’round! Am considering a new trade on a breach of yesterday’s hight at 1.0360

      • @JackieTheTrader says:

        Dear Michael, Please be very, very careful if you consider another AUD/USD long. Check your tweets of Feb 8 and you’ll see a couple from me. I tweeted you just over an hour before the 1.0255 low that a low was due 1.0250/70 and to expect a pullback towards 1.04. (I also suggested selling half and taking some profits and reentering later). The subsequent price action (to me) still supports this idea of AUD/USD turning down near 1.04 (perhaps nearer 1.0380), but the price action isn’t incredibly clear (to me) right now. Obviously, I could be wrong and have been wrong plenty of times. Of recent times, I’ve found trading FX to be more difficult than normal given the breakdown of traditional risk correlations. Right now, the only position I hold is a long EUR/GBP from 0.8490 (and expect to hold it and hopefully add to it en route to around 0.88-0.90). Good luck with your trading …

      • Thanks for your thoughts Jackie – am always interested to know how other traders are seeing the market. Of course, like everyone else, I can only trade my own view…

  2. @JackieTheTrader says:

    Dear Michael, I agree, and we can all only trade it as we see it. Further, I haven’t forgotten that fact that you are holding a positive AUD/USD short whereas I missed entry by a few pips on my AUD/USD short. Are you comfortable discussing “trade management” either with respect to this AUD/USD trade (where from memory, you entered in the high 1.05s) or in general? There are so many ways to manage longer term trades like this (to me, this isn’t something that gets much discussion, but I think is just as important as trade entries). For example, your AUD/USD trade has gone 300+ pips in your favour, and that’s one reason I suggested a partial exit (perhaps half) around 1.0250/70. Right now, price could go straight up to 1.07, and you’d either be stopped out at break even or a loss. To me, that would be really disappointing when the trade has moved so much in your favour. I certainly would have exited half around 1.0250/70 and would look to reenter around 1.04 (which is why I said it at time, not after the event). If price now goes to 1.07, I’ve made something on the trade. Of course, the moment you exit (at say 1.0250/70), price can shoot straight to parity (it’s happened plenty of times), but at least I’d still have half a position working and I’d have locked in some profits. I’m always LESS disappointed when I’m making something versus making nothing (or taking a loss) when the trade has somewhat worked out as I’d hoped. I think it’s an important topic that’s seldom discussed.

  3. Algis says:

    Each day that passes there is less reason to see the Aussie battler go higher.
    Bias is shifting to sell.
    Parity here we come.

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