Tuesday, December 21, 2010

AUDUSD—near top of range

AUDUSD opened 2010 at .8927, reached down to a low of .8067 in May, and then climbed to a high of 1.0183 in November. It then fell to .9537. The rally from there, many of which believed would result in a swing high to 1.03 or thereabouts has stalled. Some might speculate that a thin holiday market is responsible. However, note that last week's candle was bearish with its long upper shadow reaching up to 1.0029. In addition, if you look at a three-hour chart, you see that the rally from .9537 looks corrective (three waves up) and that the entire move is taking place within a rectangle. Be that as it is, the pair is still in an overall uptrend for the year.

Trading in an illiquid market can be dangerous. However, the pair looks like a possible short around current levels (9988 as of 8:19AM EST). Weakness appears if the pair is unable to climb above 1.0005 (downtrend line from the 1.0183 high) so the stop can be tight. Initial support is at .9889, .9825/12, .9767/25 and .9650. A close below .9537 (the last swing low) would open support at .9406, .9222, and .8770 (strong). Above 1.0005 is additional resistance at 1.0029 and 1.0183. Above 1.0183 opens up prior price projections but let's see if it can get above there before discussing those again.

I looked at average monthly moves in price for AUDUSD during December going back to 1980. There are some outliers (i.e. 850 pips in 2008 and 525 in 2003) but the range is generally below 400. The range so far this month has been 492 and it's nearer the top of that range than the bottom. Data like this can be useless—I certainly wouldn't bet the farm on its reliability but it gives some sense of range.

Here's a three-hour 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.

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