AUDUSD – CORRECTION OR CONSOLIDATION?

As long-time readers know, I only occasionally comment on markets, with most of my other commentary saving itself more generally for aspects of trader performance, psychology and behaviour. One of my favourite markets to comment on (and trade) is AUDUSD fx. Maybe its because I have a good record on this in recent year, though whether that is skill or luck who knows?

My first attempt at calling the AUDUSD this year was Back in February. Whilst my call proved correct, my timing was a little premature. Nonetheless, I did qualify this in the title of the post ‘Is the AUDUSD in the early stages of turning?’ Approximately 2 months later it finally turned.

My next attempt was to call a bottom for the strong down-move from April through to late June. The post on the 25th June was titled ‘AUDUSD FX SPOT - Possible pause in the downside as market hits key Fibo levels.’. Whilst the call has proved prescient, the market did move slightly lower than I suggested it might, though in truth this was short-lived and quite marginal.

Over the 2 calls, I’d give myself a mark of around ‘8 out of 10’. – I did I’m glad to say have the trade on too, though I took my profit a little early, but still managed to catch a nice move.

Where to next then? My favoured call is that we are in the early stages of a correction, though this is not a high confidence call at this stage, and it is quite possible that the market is consolidating ahead of further decline. Looking at the attached 8 hour chart below, what appears to be a rounded basing pattern may have formed, though until it clears 9280 and then 9326 on decent volume and manages to hold those levels there is a risk of failure in the basing call. Looking at where the correction may move to if it does unfold. I’m guessing gains could move to around 9580 to 9600. This is where the 2012 low and the level where 38% correction of the drop from April occurs. A sustained move through 96.00 could possibly push higher closer to 98.00. – Personally I still remain bearish longer-term, hence any rally is most likely a contra-trend move, with the low to mid 80s still on the cards for later 2013 or 2014.

Looking at the risk reward on this trade, if it were to prove correct, then we could be looking at approximately 300-350 points on the upside (And possibly more), with risk below last week’s 9137 low, therefore approximately 110 points risk at this time. I like this risk/reward on this trade, though dip buyers would naturally improve their odds. Waiting for a confirmed break, would bring greater confidence to the trade, however it would have a far inferior risk/rewards odds in my mind.

Anyway, third time luck for this year, let’s see what the summer holds. (Or winter if you reading this south of the equator).