Gold has struggled to maintain its luster over the past three months. Despite a strong move for most of 2011, the metal is off over 20% from its September high at 1920.80. Price has since bounced off our 200 period SMA (simple moving average) at $1,527 and no finding resistance under the $1700. With the metal failing to make higher highs, this may signal the continuation of downward momentum on gold.
Fundamentally, the Aussie Dollar currency is correlated to gold as Australia is the world’s second largest producer of the metal in the world. This correlation means our directional bias on gold will allow us to make a trading decision on Aussie Pairs. Since resistance is found on gold at $1700 on our daily chart, we have discussed resistance also on the AUD/JPY with our article on October 13thand reasonably presume it is in place on the AUD/USD pair as well.
Taking Price in to a 4Hour chart we can see the AUD/USD moving in line with gold, holding a downward trajectory. We find resistance currently above 1.0352 the October 19th high. Support appears to be holding up price over 1.0140, causing it to consolidating price in a small triangle pattern. Breakout traders may utilize the triangle pattern to enter on the establishment of new lows.
My preference is to enter the AUD/USD on new lows under 1.0100. Stops should be placed 200 points away with the middle of our triangle. Limits should look to first target .9700 for a clear 1:2 Risk/Reward profile. Secondary will look for targets on new lows under .9500.
Alternative scenarios include price breaking through resistance and moving on to new highs.
Additional Resources
---Written by Walker England, Trading Instructor To contact Walker, email instructor@dailyfx.com. Follow me on Twitter at @WEnglandFX.
To be added to Walker’s e-mail distribution list, send an email with the subject line “Distribution List” to instructor@dailyfx.com.
