AUDUSD—softer

Cyclone Yasi, which just hit the northeastern coast of Australia in the past hour, may be softening the Aussie since damage is expected to be high. It's a terrible thing for Queensland which has had awful flooding recently.

The pair hit a high of 1.0148 before falling back to a low of 1.0065 so far (as of 10:23 AM EST). On the hourly chart this low created a hammer candle. If this is a simple, short-term ABC correction, 1.618 of the A wave would be 1.0058. Additional support is at .9988,.9916, .9867, .9804, .9740, and .9691. For the near term, one can watch the hourly chart. If the hammer low is broken at 1.0065, I'll probably lighten my long position.

Two things are important to remember with this pair: first, it's still in an overall uptrend; second, it has thrown off troubling signals (breaking a daily trend line, etc) that won't be fully overcome until it closes above 1.0257. If it does do that then there are attractive price targets in the 1.0350 area and higher.

On the monthly chart, the uptrend is in full display. Price is well above the monthly EMA at .9596 and this EMA roughly served as support in August and September. The most recent significant low is .9536 (below this would confirm the double top). The monthly uptrend line is at .9130. Bottom line is there could be quite a bit of correction before these monthly support levels are violated. There is negative divergence with RSI that has been going on since the 2008 low.As they say, you can go broke trading divergence—there needs to be other signals. On the weekly chart (not shown) there have been bearish engulfing candles twice.

If you're not already long with profits be careful with this pair right now.

Here's the monthly chart.











© Dianne Fecteau, 2011. 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.