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Forex Technical Analysis: AUDUSD Targets Short Scalps Sub 1.0480

By , Currency Strategist
08 November 2012 20:38 GMT

The Australian dollar's recent advance has carried the pair into critical resistance with the aussie testing the topside range of a multi-year long technical formation. Despite the fact that recent economic data does show improving conditions domestically (last night's stronger than expected employment data, trade balance data earlier this month and the RBA holding off on further rate cuts), technically the pair looks poised for a correction lower with a break back below the 1.04-handle offering clearly defined scalp targets. Note that Credit Suisse overnight swaps are still factoring in 57% chance of a 25bps cut next month with twelve month expectations calling for an additional 58bps in cuts. A continued sell-off in broader risk assets would only reinforce this move with our medium-term target eyed at 1.0330 against the monthly high at 1.0480.

AUDUSD Daily Chart

Forex_Technical_Analysis_AUDUSD_Targets_Short_Scalps_Sub_1.0480_body_AUD_DAILY.png, Forex Technical Analysis: AUDUSD Targets Short Scalps Sub 1.0480

A look at the encompassing structure sees the AUDUSD continuing to trade into the apex of abroad triangle formation dating back to late 2011. The advance off the October lows at 1.0150 was well bid with the pair reaching exhaustion at the confluence of trendline resistance dating back to the February highs and the R1 monthly pivot at 1.0480. We reserve this level as our topside limit with a breach above shifting our focus higher towards the 1.05 and the R2 monthly pivot at 1.0575. Failure to mount the 61.8% retracement taken from the September decent at 1.0444 (on a close basis) further reinforces the idea of the pair being over-stretched at these levels with our primary objective eyed at the confluence of the 38.2% retracement and the 200-day moving average at 1.0335. Note that daily RSI has continued to hold below the 60-threshold offering further conviction on our directional bias.

AUDUSD Scalp Chart

Forex_Technical_Analysis_AUDUSD_Targets_Short_Scalps_Sub_1.0480_body_AUD_SCALP.png, Forex Technical Analysis: AUDUSD Targets Short Scalps Sub 1.0480

The scalp chart shows the AUDUSD trading into near-term resistance at the 78.6% Fibonacci extension at 1.0440. Note that this level confluences with the key 61.8% retracement taken from the decent off the September highs (as seen on the daily chart) and is likely to offer strong resistance for the pair. Interim support targets are seen at the 1.0418 intra-day pivot backed by the 61.8% extension at 1.0396, 1.0365, and the 38.2% extension at 1.0335. A break below this level risks substantial declines for the aussie with targets seen lower at the monthly pivot at 1.0313 and the 23.6% extension at 1.0296.

A breach above 1.0440 targets subsequent topside resistance at 1.0470. A breach above the monthly high at 1.0480 invalidates our near-term bias with such a scenario eyeing the 100% extension at 1.0495, 1.0520 and the 123.6% extension at 1.0550. A daily average true range of 68 pips yields profit targets of 17-19 pips per scalp depending on entry. Should ATR pullback dramatically, adjust profit targets as need to ensure more feasible scalps.

*We will remain flexible with our bias with a breach above 1.0480 eyeing subsequent resistance targets. It’s extremely important in these market conditions to give added consideration regarding the timing of intra-day scalps with the opening ranges on a session & hourly basis offering further clarity on intra-day biases. Note that inflation data out of China later tonight may spark added volatility in the aussie and as such, traders are advised to use caution and adjust position size accordingly as we head into the print.

Key Threshold Grid

Entry/Exit Targets

Timeframe

Level

Significance

Resistance 1 Target

30min

1.0440

78.6% Fibonacci Ext

Resistance 2 Target

30min

1.0470

Soft Resistance

Topside Limit

30min

1.0480

November High

Break Target 1

30min

1.0495

100% Fibonacci Ext

Break Target 2

30min

1.0520

Soft Resistance

Break Target 3

30min

1.0550

123.6% Fibonacci Ext

Support Target 1

30min

1.0418

Soft Support

Support Target 2

30min

1.0396

61.8% Fibonacci Ext

Support Target 3

30min

1.0365

50% Fibonacci Ext

Bottom Limit

30min

1.0335

38.2% Ext / 200DMA

Break Target 1

Daily

1.0313

Monthly Pivot

Break Target 2

30min

1.0296

23.6% Fibonacci Ext

Break Target 2

30min

1.0270

Soft Support

Average True Range

Daily

68

Profit Targets 17-19pips

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

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

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08 November 2012 20:38 GMT