The AUD/USD continues to be a difficult read for trend traders in recent months. It has not been experiencing the massive declines seen on other pairs like the EUR/USD and AUD/USD. Below, we can see the Aussie making advances relative to the USD. The AUD/USD has gained 723 pips since the creation of its November 2011 low, at .9662. By comparison, during the same time frame the EUR/USD has declined a maximum of 866 pips! So which currency is stronger, the Aussie or the US Dollar?
Our technical trading knowledge with trading patterns will give us a hint on price direction. A triangle has been building on our daily chart, as price consolidates between support and resistance. As there is not much space in the interior of this formation, we can move to smaller term timeframes and look for breakouts. Depending if price penetrates support or resistance, we can clue in for the development of our next trend.
Moving to our 8Hour chart, we can see the formation of an ascending triangle. Support has steadily risen, as indicated on our daily chart. Resistance is created by connecting our highs near the 1.0380 pricing level. Each time price has tested this point, selling pressure has held off further advance. It is important to note however, that each time price failed to break over 1.0380, a lower low has not been created. Due to this fact, preferences will be given to breakout occuring to the upside.
My preference is to place entries to trade the AUD/USD on a breakout. Entrys to buy should be set near 1.0450. Stops should be placed at 1.0350 under our support line for a clear 1:2 Risk/Reward ratio. Secondary targets may reach for new highs over 1.1075.
Alternative scenarios include continuing to trade “inside”, prior to a breakout.
---Written by Walker England, Trading Instructor
To contact Walker, email instructor@dailyfx.com. Follow me on Twitter at @WEnglandFX.
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