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Entering the AUD/USD Pullback Is All About Timing

Entering the AUD/USD Pullback Is All About Timing

Benjamin Spier, Technical Strategist

Talking Points:

  • AUD/USD remains on a long term downtrend
  • The daily Aussie chart lacks directional bias
  • Wait for a break of support or resistance before entering the trade

Want to trade with proprietary strategies developed by FXCM? Find out how here.

There has been no question that the Australian Dollar is trading in a long-term downtrend against the US Dollar since the pair broke below the 2.5 year low in June of 2013. AUD/USD then continued to set new 3-year lows in January 2014, but only after posting a healthy 50% pullback of the original move lower. However, with a second pullback of the downtrend underway, traders must now consider if and when to enter the possible continuation of the downtrend.

AUD/USD Weekly: February 27, 2014

Entering_the_AUDUSD_Pullback_Is_All_About_Timing_body_Picture_3.png, Entering the AUD/USD Pullback Is All About Timing

Looking at a daily chart, we see that when the Aussie broke out of the second leg of the downtrend, the pair continued to trade in a less shallow downtrend around the start of the New Year. But that down trend was also broken earlier this month, when a period of sideways trading unconvincingly brought the pair above the upper channel.

AUD/USD Daily: February 27, 2014

Entering_the_AUDUSD_Pullback_Is_All_About_Timing_body_Picture_2.png, Entering the AUD/USD Pullback Is All About Timing

Although AUD/USD continues to trade above the upper trend channel, the pair tested and failed to break above the 2-month high at .9086, which may scare traders away from trying to place bets on AUD/USD rising further. On a 4 hour chart below, we also find an upward trend line from early February that may continue to provide support, and the 2-month high at .9086 in January may continue to provide resistance.

AUD/USD 4-Hour: February 27, 2014

Entering_the_AUDUSD_Pullback_Is_All_About_Timing_body_Picture_1.png, Entering the AUD/USD Pullback Is All About Timing

Traders looking to short the Aussie against the greenback should wait for a convincing daily close below support by the upward trendline, while those expecting a further pullback to the long-term downward trendline from the weekly chart should wait for a daily close above the January high.

New to Forex? Watch this video

Chart created by Benjamin Spier using Marketscope 2.0

-- Written by Benjamin Spier, DailyFX Research. Feedback can be sent to instructor@dailyfx.com .

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.

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