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Forex Scalp Prospects as AUDUSD, AUDCAD Approach Key Inflection Point

By , Currency Strategist
13 November 2012 20:53 GMT

The Australian dollar has remained in focus for our scalp trades over the past few weeks and so I thought it appropriate to offer an update on the current progression of the setup. Also of interest is the current positioning of the AUDCAD which has traded into a key near-term inflection point at 1.0455.

AUDUSD Daily Chart

Forex_Scalp_Prospects_as_AUDUSD_AUDCAD_Approach_Key_Inflection_Point_body_Picture_4.png, Forex Scalp Prospects as AUDUSD, AUDCAD Approach Key Inflection Point

The AUDUSD rejection at 1.0440 noted in last week's report proved advantageous for our initial bearish scalp bias and the aussie declined into support target 3 at 1.0365 before reversing course higher. With price action respecting our bottom limit at 1.0335, we adopted a bullish intra-day bias with a breach back above the 1.04-handle. The pair is once again testing pivotal near-term resistance at the 61.8% retracement taken from the September decline at 1.0445. A rejection of this level puts our downside targets back in play while a breach above this mark targets the near confluence of the R1 monthly pivot and monthly highs at 1.0480, and the 100% extension off the October lows at the 1.05-handle. Note that daily RSI now looks poised for a test of the 60-mark, with a breach offering further conviction on long-side bias scalps.

AUDUSD Scalp Chart

Forex_Scalp_Prospects_as_AUDUSD_AUDCAD_Approach_Key_Inflection_Point_body_Picture_3.png, Forex Scalp Prospects as AUDUSD, AUDCAD Approach Key Inflection Point

The scalp chart shows the aussie breaching trendline resistance dating back to the monthly highs with the exchange rate currently sitting just above 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." A close above this mark risks advances to 1.0470 with a breach above the monthly highs eyeing targets at the 100% extension at 1.0495, 1.0520 and the 123.6% extension at 1.0550.

If the AUDUSD fails to close above this mark yet again, look for RSI to trigger shorts targeting 1.0420, the 61.8% extension at 1.0396 and 1.0365. Again we note that a key break below our bottom limit at convergence of the 38.2% extension at 1.0335 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. The daily average true range has tightened to 63 pips and so yields profit targets of 16-18 pips per scalp depending on entry. Should ATRcontinue to pullback, 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.

Key Threshold Grid: AUDUSD

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

1.0420

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

Daily

1.0265

23.6% Retracement

Average True Range

Daily

63

Profit Targets 16-18pips

AUDCAD Daily Chart

Forex_Scalp_Prospects_as_AUDUSD_AUDCAD_Approach_Key_Inflection_Point_body_Picture_2.png, Forex Scalp Prospects as AUDUSD, AUDCAD Approach Key Inflection Point

A look at the encompassing structure sees the AUDCAD approaching trendline resistance dating back to the February 15-year highs at 1.0783 with the pair rallying an impressive 5.3% off the September lows. The exchange rate has now reached a pivotal inflection point at the confluence of the 78.6% retracement taken from the August decline and the June highs at 1.0455. While it is too pre-mature to call this a high, we note that daily RSI has now advanced right into the 70-overbought threshold and a reaction at this level is likely. A break of RSI trendline support may trigger a near-term correction with a move below the 78.6% Fibonacci extension taken from the October 8th and 23rd lows at 1.0445 targeting the 61.8% extension at 1.0385. A topside break above 1.0460 coupled with a breach of the 70-threshold in RSI targets trendline resistance (currently around the 1.05-handle) and the 100% Extension at 1.0520.

AUDCAD Scalp Chart

Forex_Scalp_Prospects_as_AUDUSD_AUDCAD_Approach_Key_Inflection_Point_body_Picture_1.png, Forex Scalp Prospects as AUDUSD, AUDCAD Approach Key Inflection Point

The 30min scalp chart shows near-term failure to hold above key resistance at the 1.0455-threshold with a break back below the 78.6% extension at 1.0445 targeting 1.0420, the 1.04-handle and the 61.8% extension at 1.0383. A break below this level offers further conviction to our downside bias with such a scenario eyeing targets at 1.0360 and the 61.8% retracement at 1.0340. Note that an RSI break below near-term trendline support could trigger the correction below 1.0445, thereby putting our short-scalps into play.

Current positioning puts this setup just below our topside limit at 1.0455 with a triggered break above eyeing targets at 1.0480, the 1.05-figure and the 100% extension at 1.0520. A daily average true range of 63 pips yields profit targets of 16-18 pips per scalp depending on entry. Should ATRcontinue to pullback, adjust profit targets as need to ensure more feasible scalps.

*We will remain flexible with our bias with a breach above 1.0460 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.

Key Threshold Grid: AUDCAD

Entry/Exit Targets

Timeframe

Level

Significance

Topside Limit

30min

1.0455

78.6% Retrace/June High

Break Target 1

30min

1.0480

Soft Resistance

Break Target 2

30min

1.05

Psychological Barrier

Break Target 3

30min

1.0520

100% Fibonacci Ext

Support Target 1

30min

1.0445

78.6% Fibonacci Ext

Support Target 2

30min

1.0420

Soft Support

Support Target 3

30min

1.04

Psychological Barrier

Bottom Limit

30min

1.0383

61.8% Fibonacci Ext

Break Target 1

30min

1.0360

Soft Support

Break Target 2

30min

1.0340

61.8% Retracement

Break Target 3

30min

1.0310

Soft Support

Break Target 4

30min

1.0280

November Low

Average True Range

Daily

63

Profit Targets 16-18pips

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

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13 November 2012 20:53 GMT