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.
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.
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.
- In case of a false breakout, reversal traders might want to attempt trading against the breakout.
- In case of a sustainable breakout, then trend and breakout traders can trade it in that direction.
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:
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.
Latest posts by Chris Svorcik (see all)
- 4 Ways of Reviewing the Forex Majors - October 20, 2014
- The Number One Handbook on Trend Lines in Forex Part 4 - October 19, 2014
- Drawing Trend Lines on 2 Forex Pairs: Setups You Don’t Want to Miss - October 16, 2014
Winner’s Edge Trading, as seen on: