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Our 2018 AUD/USD forecast included a smooth start and rough finish. We were anticipating a mild break higher above 81 cents at the beginning of the year to finish off a large complex wave that began in September 2015. That mild break would put us on alert for a longer-term top and reversal.

After an important top was established in January, AUDUSD has begun a bearish impulsive wave that may retest 76 cents and possibly lower levels.

Two weeks ago, we argued that AUDUSD ended a three-year bullish wave and that bearish traders may take over the upper hand. In Monday’s Elliott Wave webinar, we dialed in more specific price zones to watch out for, namely a break below .7891 would trigger a short entry.

AUDUSD Elliott Wave Trade Set Up

A small support shelf near .7892 was established over the past several days. Now that AUDUSD has pressed into the reversal zone, it is best to wait for support levels to break to indicate the market is ready to trade back into the direction of the bearish trend.

Entry: Short .7891

Risk: .8117

First Target: .7635

Second Target: .7400

Third Target: .6900

We will manually adjust the stop loss in our favor if the market moves favorably in our direction.

The risk to reward ratio on the first target is positive. This is a crucial element we found when researching millions of live trades. That is to say, traders with positive risk to reward ratios in their strategies are the habits we found in successful traders.

Elliott Wave chart analysis on AUDUSD.

Elliott Wave Theory FAQs

What is the Elliott Wave Theory?

Elliott Wave Theory is a forex trading stud that identifies the highs and lows of price movements on charts via wave patterns. Traders often analyze the 5-wave impulse sequence and 3-wave corrective sequence to help them trade forex strategically. We cover these wave sequences in our beginners and advanced Elliott Wave trading guides.

Why is the first target set at .7635?

In Elliott Wave Theory, many times alternating waves have Fibonacci or equal proportion to one another. The downward wave from January 31 to February 9 needs an alternating wave to measure against. Therefore, if this market is successful in moving lower, an equal distance to the Jan 31 – Feb 9 wave projected from the February 16 high is at .7630. Since these are price zones and the market rarely stops at the exact levels, we look to a first target a few pips before the wave relationship.

New to FX trading? We created this guide just for you.

---Written by Jeremy Wagner, CEWA-M

Jeremy Wagner is a Certified Elliott Wave Analyst with a Master’s designation. Jeremy provides Elliott Wave analysis on key markets as well as Elliott Wave educational resources. Read more of Jeremy’s Elliott Wave reports via his bio page.

Communicate with Jeremy and have your shout below by posting in the comments area. Feel free to include your Elliott Wave count as well.

Discuss this market with Jeremy in Monday’s US Opening Bell webinar.

Follow on twitter @JWagnerFXTrader .

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