Forex markets are tough at the moment. Quick reversals and sideways movement present challenges to many traders. While good money management prevents extreme capital losses, repeated stop outs can reduce both the bank account and trading confidence. One response to these choppy conditions is to take a step back and re-assess the big picture.
Fortunately, the daily chart offers a scenario that gels with my fundamental view - current USD weakness is likely to prove temporary, as tapering is only deferred by recent events. One good jobs number could see FX traders flip their view - and start buying USD. That should see AUD/USD significantly lower.
Yesterday's minutes from the RBA Board expressed ongoing concern about the "uncomfortably high" levels of the AUD, meaning interference in a fall is unlikely. Fundamentally, I want to be short AUD, yet this has cost capital over the last two weeks.
The daily chart suggests this may be the right approach. A potential Head and Shoulders formation that coincides with the Fibonacci retracement levels (of the drop from 1.06 to 0.88) gives me additional confidence. The neckline ties nicely to the 23.6% level around 0.9260. The first shoulder peaked at the 38.2% level around 0.9515, and the head is around the 50% retracement at 0.9725.
Normally, I wouldn't trade a H&S until the break of the neckline. In this case, a bearish fundamental view and the fact that the H&S is obeying Fibonacci makes it an exception. I'm looking at shorting somewhere close to 0.9500, with a stop above 0.9525. The MACD may be the entry trigger. A move up from here should see it cross below the zero line. A subsequent move down could then produce a bear cross above the zero line, and for me, a sell signal.
If the pair does head lower from there, I'll add to shorts on a neckline breach, with profit targets juts above 0.90 and 0.88.