Monday, December 6, 2010

AUDUSD—at .618

The high Friday was .9938, a .618 retracement of the move from 1.0183 down to .9537. Many are watching.9954. That price was 50% of the prior swing of 1.0183 to .9725. It occurred the week ending 11/26 and was essentially matched by the high of this past Friday's .9938. In essence then, you have two weeks with the same high. Last week's low was lower than the prior week's and was essentially the same low as the week of 10/8. The July '08 high was .9851 so this adds to the resistance of this level.

The low so far today has been .9849 which is a confluence zone. The pair is trying to base here.

I'm still long from .9602 and just took another third off the table at +268 pips. If the pair manages a close above .9954, I may add another long as the path is clearer for a move up to retest the prior 1.0183. The top of the rectangle is 1.0329. As I pointed out last week, the pair has been a strong performer since the 2008 low and it's not unreasonable to believe it could get there. The last two daily candles have been very bullish.

One can't dismiss the possibility, though, that it may falter again at .9954. This would be a short signal. I would reverse. There are other bearish signals and I have price targets from both my daily and three-hour point and figure charts of .8500 and .8970 respectively. A close below the confluence of .9849, along with falling momentum on the shorter-term charts (i.e. RSI falling and price following) will be the first hints of another top.

Here's the daily chart with a possible Elliott Wave count. This count looks bullish since it assumes completion of an ABC correction. However, there is an alternate (bearish) count possible particularly within the context of weekly and monthly charts. Elliott is not always useful (heresy, I know, to the true believers but I don't know any true believers that are rich from trading—the truest ones are slogging away in regular jobs so what does that tell you?). In this case, I find it less than useful even though it supports my long position. The downward sloping RSI line I've drawn in red indicates negative divergence so this is a bearish sign. This pair is an interesting one—it's in an overall uptrend since the 2008 lows but is showing signs of real weakness, especially on the weekly chart as I blogged about on Friday.

© 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.

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