Analysis of the AUDUSD and Where It is Going

Our core focus is often on trending currency pairs but today we will break with that tradition for once. Although the AUDUSD is in a massive consolidation, it could provide a very interesting trade potential when a breakout does occur.

AUDUSD

The consolidation has lasted close to 5 months and has been 250 pips narrow. The light purple box represents the range in the screenshot above. This tight zone has provided very little space for trading but that could soon change.

This is not the first time the AUDUSD has built an extremely long and tight consolidation zone, which was followed by a massive breakout. It already happened once and it was not so long ago: between July 2012 and April 2013 the range took 10-11 months. The breakout then was a whopping 2,000 pips.

The 2,000 pip breakout is the same kind of potential that the AUDUSD has to offer in the near future.

26- 8- 2014 au 2

KEY BREAK OUT LEVEL

The levels for when a breakout occurs are clearly defined: obviously we can use the top and the bottom of the current range as the breakout levels (top and bottom of the purple box in screenshot below).

But traders might want to be cautious with jumping on a trade too quickly: waiting for a confirmation of the breakout candle and whether the close is near the low or high increases the odds of a successful breakout.

  1. In case of a false breakout, reversal traders might want to attempt trading against the breakout.
  2. In case of a sustainable breakout, then trend and breakout traders can trade it in that direction.

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TARGET POTENTIAL

The target potential for a bearish breakout is much larger than for a bullish breakout. US Dollar strength in other words could provide a similar 2000 pip + breakout scenario as 2 years ago. US weakness however would mean AUDUSD upside and then the pair runs into a top and resistance very soon. Here are the details:

Scenario 1 bearish breakout AUDUSD: a break could see price fall towards the next Fibonacci targets at 0.83-0.84 for almost 1,000 pips.

Scenario 2 bullish breakout AUDUSD: a break could price challenge the top at 0.9750 and maybe the 61.8% Fibonacci retracement level at 0.99 for 250-400 pips.

Both breakouts offer a good number of pips to traders, although the bearish breakout seems to have the most wide open space.

For the moment you need to wait for the break to occur… but when the break finally does occur, then you will be ahead of the game with a plan ready to trade it.

Take a look at the screenshot below for the breakout spaces mentioned:

26- 8- 2014 au 4

Now the ball is in your court: how do YOU see the AUDUSD? What are the key characteristics and tools are you are monitoring for this pair? Let us know down below!

As always thanks for sharing this post and wish you Happy Trading.

 

 

 

 

 

 

 

 

 

 

 

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Chris is the head of the mentoring program and trading room at Winner's Edge Trading. He has a passion for technical analysis and helping Forex traders achieve their goals in trading. Chris has been trading for almost 10 years and is most fond of the Double Trend Trap (as a strategy), moving averages (as an indicator) and Fibonacci (as a tool).
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  • Chris

    Thank you Marek for your comments and your views. Much appreciated. Yes agree with you that a spike up to hit resistance and then fall quickly could be the most likely scenario. A big consolidation zone like has a decent chance of false break as well. Thanks for your input!!

  • Marek

    I think about attacking about 0.9525 – 0.9550-0.96 … and turn back in to bearish mode. Fundamental analysis may go for this scenario…
    1. Look for GM in Australia in 2015… and there is only 4 months left. How much Australia loose?
    2. Australian company – invest Bilions AUD – outside AU – so I think – it will be big drop in Australian currency on these levels..
    3. (CFTC raports still about long positions..)… but it may be a week – when bulls close their longs – when got signal…

    So I think – it’s still up, but soon – we should change direction – it may be also exit form risk on stocks…