Trade FOREX with FXCM

  • Award-Winning Platform
  • 24/7 Customer Support
  • Trade Directly on Charts
  • Free $50K Practice Account

Resources

AUDUSD Set to Crash Through Critical Levels- Scalps for the Week

By , Currency Strategist
21 March 2012 20:48 GMT

Although the Australian dollar has recently shown signs of decoupling with broader risk trends, the AUDUSD pair remains in our sights after rebounding sharply off key resistance yesterday. We look to play the continuation of this downtrend after the pair put in a double top in in February, suggesting the aussie risks further losses as we head into the close of the month. That said, we must note critical support levels just lower where the exchange rate may have trouble penetrating and as such we will reserve these levels as our bottom limit which will be required for the initiation of new short positions.

AUDUSD Daily Chart

AUDUSD_Set_to_Crash_Through_Critical_Levels-_Scalps_for_the_week_body_Picture_2.png, AUDUSD Set to Crash Through Critical Levels- Scalps for the Week

A daily chart shows the AUDUSD continuing to trade within the confines of a descending channel formation dating back to the February 29th high with the pair closing just below the 38.2% Fibonacci retracement taken from the December 15th advance at 1.0475. Key daily support for the aussie rests with the 200-day moving average at the 1.04-figure and is backed closely by the confluence of channel support and the 50% retracement at 1.0360. We will reserve this level as our bottom limit with a break below offering further conviction on our directional bias. Note that so long as RSI remains within the confines of the descending channel we will continue to look lower with rallies in the pair offering favorable entries on short-scalps.

AUDUSD Scalp Chart

AUDUSD_Set_to_Crash_Through_Critical_Levels-_Scalps_for_the_week_body_Picture_1.png, AUDUSD Set to Crash Through Critical Levels- Scalps for the Week

The aussie rebounded off the convergence of former trendline resistance (now support) dating back to the February 29th highs and the 78.6% Fibonacci extension taken form the March 1st and 8th crests at 1.0425. This level also coincides with the March lows made earlier in the month on the 15th and may provide strong support in the interim. Subsequent support targets are eyed at the 200-day moving average at the 1.04-handle and at our bottom limit at the 100% extension at 1.0360. A break below this level offers further conviction on our directional bias with extended break targets held at 1.0335 and 1.0315.

Soft interim resistance stands at 1.0450 backed by the 61.8% extension at 1.0480 and the 50% extension at 1.0515. A breach above out topside limit at the 38.2% extension at 1.0550 negates our interim bias with such a scenario eyeing subsequent topside targets at the 23.6% extension at 1.0595, 1.0620, and 1.0645. A move past 1.0670 risks substantial dollar losses with extended targets seen at the 1.07-figure. A daily average true range of 110 yields profit targets of 25-27 pips depending on entry. Should ATR pull back dramatically, adjust profit targets as needed to ensure more feasible scalps.

*Note that the scalp will not be active until a break below 1.0425 or a rebound off 1.0450 or subsequent resistance level with RSI conviction. We will remain flexible with our bias with a move passed our topside limit at 1.0550 eyeing topside targets. Note that Chinese manufacturing data tonight at 10:30ET may trigger some volatility and as such traders are recommended to be flat going into the print until such time that a clear market direction is identified.

Key Thresholds

Entry/Exit Targets

Timeframe

Level

Significance

Resistance 1 Target

30min

1.0450

Soft Resistance

Resistance 2 Target

30min

1.0480

61.8% Fibonacci Ext

Resistance 3 Target

30min

1.0515

50% Fibonacci Ext

Topside Limit

30min

1.0550

38.2% Fibonacci Ext

Break-Target

30min

1.0595

23.6% Fib Retracement

Extended Break- Target

30min

1.0620

Soft resistance

Support 1 Target

30min

1.0425

78.6% Fibonacci Ext (March Low)

Support 2 Target

30min

1.0400

200-DMA

Support 3 Target

30min

1.0380

Soft Support

Bottom Limit

30min

1.0360

100% Fib Retracement

Break-Target

30min

1.0335

Soft Support

Extended Break-Target

30min

1.0315

Soft Support

Average True Range

Daily

110

Profit Targets 25-27 pips

---Written by Michael Boutros, Currency Strategist with DailyFX.com

Join Michael on Tuesday morning for a Live Scalping Webinar at 1230GMT (8:30ET) to cover these scalps and more.

To contact Michael email mboutros@dailyfx.com or follow him on Twitter @MBForex

To be added to Michael’s distribution list, send an email with the subject line “Distribution List”

provides forex news and technical analysis on the trends that influence the global currency markets.
Learn forex trading with a free practice account and trading charts from

21 March 2012 20:48 GMT