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AUD:USD - Potential for 91.6 or 85.5 but corrective rally in the meantime?

CMC Markets

It can be useful to have an overall road map of a chart in mind when selecting technical set ups. What is the major trend and where do shorter term charts fit into this picture?

To me the big picture of the Aussie Dollar is that we are potentially in a major ABC correction of the big rally from .6010 to 1.1080. This downward move may have a lot further to go but right at the moment we could be in the early stages of a smaller corrective rally.

If this road map holds true, short term traders would be looking for buy opportunities while longer term traders would be seeking to take advantage of a corrective rally to re -join the major downtrend.

On the weekly chart below, I have outlined how the rally from .60 to 1.108 can be labelled as a conventional 5 swing advance. This is very often followed by a 3 swing or ABC correction. At this early stage, the decline from 1.108 is on track to be a conventional ABC correction.

I have used Fibonacci projections to look for points that could signify the end of this correction. Two of these are noted on the chart. The first consists of:

  • 38.2% retracement and
  • Projection that the B/C swing will be the same size as the  A/B swing

The second Fib cluster consists of:

  • 50% retracement and
  • Projection that the B/C swing will be 161.8% of the A/B correction. I've left this projection off the chart to avoid showing a forest of lines

It's early days yet and the structure of the current downtrend may change, these projections.

AUDUSD - Weekly. Source CMC Tracker

The daily chart starts to zoom in on a closer and more practical view of things from a trader"s point of view. Again, it's early days yet but it is starting to look as though we could be finishing the first intermediate 5 swing decline on the way down from B to C.

The possible clue to this is that we have overlapped back through the low at "3".

If this proves, correct then the 200 period moving average (green line) and the 50% retracement level both at around 1.02/1.025 are potentially interesting resistance levels.

From a short term traders perspective, it's also interesting to note that the fast stochastic on the daily chart is indicating significant upward momentum following a recent break out of the oversold zone.

It pays to be flexible with these "road map views". If we move back below "5" without rallying much further, then this outlook would change. This would make the recent rally look just like a minor correction of the ongoing intermediate decline from "2".

AUD:USD - Daily. Source: CMC Tracker

Turning to the swing traders, hourly chart, the road map of the daily time frame creates a bias in favour of long setups. Traders have many tools they may use to look for these including chart patterns, indicators and momentum oscillators.

As I write this we have just popped above the 200 hour moving average, negating what could have been a triangle set up.

It may also pay to be on the lookout for corrective formations providing an opportunity to join the intermediate uptrend.

AUD:USD - 1 Hour. Source CMC Tracker

Cheers

Ric


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