Forex Technical Update
The AUD/USD started the week giving back last Friday's gains. However, after the RBA meeting revealed that it left rates unchanged at 4.25% instead of the expected cut to 4.00%, the market bid up the AUD/USD, pushing it beyond 1.0800. It has since found resistance just below 1.0845. The market is trading sideways again, in a slight congestion as the 1H chart shows higher lows and a lower high. The RSI is also starting to be stuck between 40 and 60. The RSI reading also shows that there is a bullish bias as the indicator level had been able to tag 70, mostly staying above 40, and failing to tag 30.
Bullish continuation has the market going toward 1.1009-1.1079 resistance area, 1.1079 being the record high. The swing projection seen in the daily chart targets 1.1009/1.1010. The market has not shown any indication of reversal yet, except for the fact that it has slowed down the last 2 global sessions and the daily RSI being above 70.
Trade Plan for Counter-trend: Despite the bullish bias, there can be a short-term plan for a counter-trend trade with the market in overbought territory according to the Daily RSI. An initial target to the downside if the market is indeed held below 1.0850 for now, for a correction, would first be the 1.0683 pivot. From 1.08, this is about 70 pips risk (giving space market to 1.0870) and a potential reward of about 120 pip potential.
If the market does reach 1.0683, is would be back to levels before the RBA, and the correction can open up toward a 1.06, near a channel support. This means the more aggressive potential is 200 pips. On the other hand, failure to break below 1.0750 should set off emergency exit consideration to at least lock in initial minimal gains of 15-20 pips.
Starting with half a position and then scaling in a the other half again if market does move up near to 1.0850 can make the average entry at 1.0820 (if entered at 1.0840), giving relative potential reward 25 more pips and taking away from potential risk of 25 pips - a swing of 50 pips in the reward-risk setup. So let's say target is 1.06, and stop is still 1.0870. The Reward-Risk ratio would be 220:50, which is better than 4:1.
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Fan Yang CMT is the Chief Technical Strategist for IBTRADE, educator trader and main contributor for FXTimes - provider of Forex News, Analysis, Education, Videos, Charts, and other trading resources.