The EUR/AUD continues to be one of the markets strongest trends. Currently the pair has trended 1582 pips lower from its November 2011 high at 1.3808. This trend is modest compared to the EUR/NZD 2241 pip trend, discussed in January 26th edition of “Chart Of The Day”. However, understanding the direction of the move is paramount. Trend direction gives us a bias in the market for our positioning. Since the broader trend is down, we would only want to assume selling positions on the EUR/NZD pair.
Zooming in on the EUR/AUD 4hour chart we can see the development of a trading range. Normally, when trading ranges we would look to buy support and take profit at a resistance. However, this is a case of when not to trade. Seeing the extreme nature of our daily downtrend, traders should only look for opportunities to sell the EUR/AUD.
Range traders may still trade inside support and resistance levels, but are best served by placing entry’s at resistance near 1.2476, the January 30th high. Placing orders with the trend, we increase our probability of success by having the weight of previous movements behind us. Profit targets can focus on support, or even a break to levels beneath the January 17th low of 1.2226.
My preference is to place entries on the GBP/USD near the January 30th high at 1.2465. Sops should be placed above resistance at 1.2515. Primary limits may be placed at 1.2285 creating a 1:4 Risk/Reward ratio. Secondary targets can be created on a breakout towards 1.2085.
Alternative scenarios include price continuing lower breaking recent lows.
---Written by Walker England, Trading Instructor
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