Good morning to you all,
Following on from my post yesterday you can see that we are now seeing early signs of a bullish reversal on the 30 minute chart of the AUDUSD. As I discussed you can see that the ADX line has broken away from its highly elevated state and we have also had a cross of the MACD lines which also puts the MACD Histogram in positive territory. I think though most importantly we have a flattening of the 30 period moving average with the price now trading on the high side of it.
I suggested yesterday in this time frame I view the 30 period moving average as the ‘value’ level. If you are a fan of mean reversion when it comes to FX (as I am) a broad market tracking indicator like this is very valuable as the barometer of market sentiment. In this sort of timeframe I get a little wary of buying breakouts which occur a long way from the moving average simply because they require a massive amount of support to keep them moving in the direction of the trade.
As I also suggested yesterday the support/resistance line that the rate has been oscillating is key. Price seems to be struggling to break this level which for the time being adds weight to a bullish case. This was the proviso I mentioned when looking at the AUDUSD being at a ‘tipping-point’ because although there was a lot of short-term bearish momentum yesterday it was occurring right around this key level on the daily. This currency pair certainly looks weaker than it has for some time but the short term momentum has certainly changed. If you take a look at some of the other majors like the euro you can see similar swings in short term momentum though they are somewhat more advanced than the local pair.
Volatility levels are low in the short term at the moment with a 2ATR stop being less than 30 pips away so stop placement will be key. A more conservative approach may be to wait for the rate to gain some upward momentum (illustrated by the moving average) and then go long at or around the level of the moving average. Although there are some good signs if you again take a look at the euro 30 minute chart you can see what a more advanced directional change of the moving average would look like.
A long side entry now may see you get whipsawed out of the market but potentially offers a better risk:reward setup – I leave it to you how you approach it but those are 2 possibilities. Watch what happens to the rate above ~1.0530 – this is the level where to daily chart is back within its recent trading range so may find broader support there as well – at this level too you would expect the short term moving average to have found more positive overall direction.
All the best,