AUDUSD—some conflicting signals

Picking up the AUDUSD where I left off on Thursday….the pair reached a high of .8859 this morning. I sold at .8842 after it started to falter. This was an attractive level for selling although it gave me some heartburn to do so, primarily because there are some conflicting signals on the charts. I've already moved stops to breakeven. Justification for selling was that the faltering began just under .8895. That price is a .618 retracement of the entire move down from .9406 to .8067 as well as being polarity and near a speed line on the daily chart. That's good resistance. There's also some negative divergence on the hourly chart. But we'll see. For a pair I've taken hundreds of pips in profit from this month, I'm not going to be too unhappy if I'm stopped out at breakeven. If I am, then looking closer at momentum will be the key to deciding what to do.

What about the conflicting signals? The pair is forming bullish candles without much in the way of lower shadows. The USD looks as though it's correcting. Gold hasn't really started declining. And remember there was a confirmed double bottom on the chart. The price target for that is .9030. Another potential target is close below that which is the 200 day MA at .8983. I've also had recent buy signals on my point and figure chart. So those are reasons to reverse if price starts back up with good momentum.

One other note. Price moved down from the high of .9406 in November to a low of .8067 on 25 May. This took 190 days calendar days or 73% of the time of the up move from early March '09 to November '09. The high today of .8859 is an almost .618 retracement (which would be .8895). It achieved this in 27 days or only 14% of the time it took to drop. Let's see, a retracement in price of essentially .618 in 14% of the time. Does something seem out of whack?

Resistance is at .8895, .8859, .9000,.9035, .9117, and .9176. Support is at 88.00, .8728/07, .8686, .8582, .8550, .8495/88, and .8400.

Here's the hourly chart:












© Dianne Fecteau, 2010. No part of this material may be reproduced in any form, or referred to in any other publication, without the express written permission of the author.

My purpose in writing this blog is to show you how one trader, me, makes trading decisions and survives while trading Forex. One of the biggest problems I had when I first started trading was trying to apply the “rules” to actual trades. Another was the psychology—limiting losses and letting profits run. If you study my blog, you’ll see how I deal with both those issues. So my writings are not trade recommendations but rather educational in purpose. You have to decide on your own approach to trading. Remember that trading is risky.