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).

AUDUSD - CHART OBSERVATION - Bull Flag ?

AUDUSD possible overlay v EURUSD 2009-2010

Here is an interesting overlay of the AUDUSD over the past year+ versus the EURUSD in 2009/2011.

Overlays, always should be handled carefully, firstly because there is the possiblity that they are merely co-incidental, and secondly even where they do follow similar paths, the tmeptation to take them down to the micro-level, which nearly always ends in failure.

What is interesting about this overlay however, is how it accords with the '3 Peaks' pattern outlined in my previous post. - Note, the EURUSD was not part of a 3 peaks pattern, so I am purely focusing on the second half of the 3 peaks pattern here for the AUDUSD compared to a different bigger picture move for the EURUSD,

AUSUSD - LOOKS LIKE NEW HIGHS STILL TO COME.

Yesterday I asked if the High in the AUD is in, or still ahead... Then I presented two possible scenarios. - Since then the move over the past 24 hours has gone a long way to help provide clarity. - It appears as though the 'Falling Wedge' pattern has clearly won out (barring a false breakout), which suggests to me that we are likely to make a new run to the highs over the coming weeks, and that my hunch we were moving lower was wrong. - In the bigger picture the 3 Peaks pattern I have alluded to is on the back burner, at least with regard to the bearish element of it, and now I feel we have a decent possibility of higher levels, in what I think will be the final hurrah for the bull move (though of course I do invoke the official technical analysis get out clause; the false break).

The chart below shows the Falling Wedge pattern on the 4 Hour chart. Key resistrance in the short-term is 107.20.
The implication of this will have repercussions for the Risk-on/Risk-off debate. - The AUDUSD has been the heartbeat of this over the past few years, so should we see a decent bull run in the AUDUSD, it is likely to be accompanied by bullish action in most risky assets.

AUDUSD Is the top in? or new highs to come??

Last week (16th May) I posted a blog that posited that a rare big picture pattern on the AUDUSD was possibly nearing completion. This was based on a highly speculative view based off a somewhat mysterious and rare pattern, called a '3 peaks and a Domed House'. The original blog can be seen on the following link, together with a spectacular example of this pattern at work on the Phili Bank Index .http://hometraderuk.blogspot.com/2011/05/aud-highly-speculative-view.html.

If I have correctly identified this pattern, and if it follows through and completes as per the ideal pattern, this would suggest that the ultimate consequences for AUDUSD (and by association all risk) would be dire, with a return quite possibly to the lows of 2008/9.

If on the other hand I am guilty of fitting the pattern onto the market (and it would not be the first time), then the above is nothing more than complete nonsense.

Returning to the pattern;  my original blog suggested that either the high was in and now lower levels lie ahead, or we still have one more high to come. Nothing has yet changed in that view, I think it remains in the balance, though my hunch slightly leans towards the high being in, however if not then possibly a high will occur at some point during June/July.

The shorter term picture on the AUDUSD shows two conflicting patterns on the chart, which highlight this dichotomy. These can be seen on the 2 charts below. The top chart is the bearish option, with a 'Head and Shoulder' type pattern. The lower chart is the bullish option, with a falling wedge pattern highlighted. I believe this time next week we will have a clearer picture.

One thing is for certain,,, over the next couple of months all will be revealed.




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SP500 Inverse Head & Shoulders Pattern - ????

There has been a lot of talk over the past 2/3 trading days regarding the Inverse Head & Shoulder pattern on S&P futures. Head & Shoulders patterns are one of the most familiar patterns to traders, I also know from personal experience, that they can be one of the most frustrating. Many a time I've found myself jumping on a neckline break, only to be frustrated (I've also found myself committing the cardinal sin of trying to anticipate the break). Breakout failures however can often be more instructive than successful breakouts, not only do they have a tendency to rapidly wipe out the gains(losses) of that pattern, they often move well beyond the extremes of the pattern.

I've posted 3 charts below. - The top chart is the current SPM0 intraday, showing the current Inverse Head & Shoulders pattern. Below that is two examples from the SP500 of prior Head & Shoulders patterns. The first of these two shows the recent top on the S&P500, this was a successful Head & Shoulders. The lower chart shows the S&P500 from last May/June, this appeared at first to be a classic Head & Shoulders top, however the breakdown failed wiping out any losses during the formation of the pattern and the breakout, before making further substantive gains. I believe there is a strong possibility that this recent inverse Head & Shoulders pattern may fall into the category of a failed break, which could lead to significant further losses for the SP500 and US Stocks.Further to the above it is worth noting that the recent episode of Risk aversion across a wide range of markets, which began in late April/Early May, could be about to reassert itself following the pause/correction of the past week. A number of markets have returned to test key levels. Both the Dow Industrials and the S&P500 broke through the 200 day sma the week before last, since then they have both corrected back towards the 200 day ma. The AUDUSD (See below) appears to have completed a large 'Double-Top' pattern, breaking though the neckline of the double-top, however last week's price action saw a return to the breakout of this level. Also Sep10 Eurodollar Futures (See Below) broke down from a rising support line on the 20th May, dropping sharply to 98.865. Since then the future has rebounded to test the breakout of the rising trendline at 99.25, however the future now stands at 99.125.
There have been a number other markets returning to key break levels, including the CAC and the AUDJPY cross. Certain other risky assets have barely made a correction - EURUSD and IBEX to name but two, which really does not bode well for these two. EURUSD is back to the twin lows of mid 1.21s, and may well be breaking out of an Inverted 'Cup & Handle' pattern, I fear a sustained break through 1.2100 here could see rapid losses to 1.15/1.16 area.
I think an interesting week lies in store.