AUD/USD Correlation Signals a Breakout on 185 Pip Drop
Yesterday’s March 20th Chart of the Day, focused on trading Silver on a breakout to the downside. Having a market bias on commodities such as gold and silver can be influential to the currency pairs we trade as well. Below we have an overlay of the AUD/USD currency pair and Silver. From resent research these pairs are holding over an 86 % positive correlation over the last week. This implies from our previous analysis if silver is set to move lower, we can reasonably expect the AUD/USD to do the same.
Moving price into a 4Hr chart on the AUD/USD we can find support now holding under the 1.0420 pricing level. This level was tested early this morning after a two day decline of over 185pips. Traders again may take advantage of a breakout strategy on the collapse of support. Preference for entry should be given on a bar closing below 1.0420 or standard entry orders may be used. Stops may be placed above old support / new resistance at 1.0520.
My preference is to sell the AUD/USD under 1.0420. Stops should be set near 1.0520. Primary limits should look for a minimum of 200 pips at 1.0220 for a 1:2 Risk/Reward ratio. Secondary targets may assume a move closer to parity.
Alternative scenarios include price breaking over daily resistance to new highs over 1.0620.
---Written by Walker England, Trading Instructor
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DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.