Aussie ended last week with the bears probably feeling they were in control, dropping 229 pips from its high on Tuesday to a low on Friday of .9960. This may be an illusion for the bears and if they are in control, it's tenuous.
First, what's bearish? The most significant is that the pair can't seem to gain any traction to get above the 1.0257 high everyone keeps waiting for. Each time the pair approaches a high (1.0183, 1.0257, and 1.0200), there's a bearish candle pattern (circled on the chart below). So supply is coming in and it came in at a lower level this time than the last time. Then, too, the low last week dropped below parity (although it managed to close above at 1.0018). There is also negative divergence on the weekly and daily chart. Finally, the pair could be in an ABC correction from the high of 1.0257. If this is true, the A wave ran from 1.0257 down to .9804; B ran up to 1.0200; and C has started and will move lower.
On the positive side, even though last week had a lower high than the week before (but only by 11 pips), it had a higher low and closed above parity. More important, Aussie approached the bottom of the weekly triangle (which is at .9947 and also near an uptrend line coming in from last June) but didn't quite make it. From an Elliott perspective, the pair entered the triangle from an uptrend and the fact it didn't quite make point E is consistent with the Elliott interpretation of an upward breakout in these types of triangles. The upper boundary is at 1.0184 so that's something to watch this week. A sustained close above would validate that the consolidation is over and the pair is ready to resume it's uptrend. Finally, the longer-term pattern is an uptrend and it hasn't been reversed. Not until a break of .9804 and then .9537 would this change.
A break of .9804 and .9537 would confirm a topping pattern—double/triple top or head and shoulders. These are quite a bit lower than current prices but even if a trader waited until that point, there would be plenty of room to make some serious money. Until then, it's probably safest to assume the pair is consolidating prior to moving higher. Interesting pair to keep an eye on today and this week.
© 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.
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