AUD/USD: Head and Shoulders Forming? – Missed Trade

Trade Canceled: 2013-11-21 03:51

Bummer! I missed the boat on this AUD/USD short! As it turns out, the retracements were shallow for this particular pair, as the dollar was lifted by strong U.S. retail sales reports and the Aussie was weighed down by weak Chinese PMI.

audusd

I should’ve zoomed into the 1-hour time frame to see that a smaller retracement play was in the works and that the pair was finding resistance around the .9400 area. Too bad I was waiting to short at .9500 based on the longer-term Fibs on the 4-hour chart.

I guess I’m not alone in this one, as some of you have commented below that you were also waiting for the test of the 50% Fib level. For those who were gutsy enough to jump in around .9400, congratulations!

The question now though, is whether I should keep my bearish bias or not. Based on the feedback I’m getting, some believe that this pair is still good for a longer-term upside move.

As for me, I think I’ll just wait for more confirmation from the markets and possibly jump in a short trade if the actual neckline of the head and shoulder pattern breaks. Do you think that’s bound to happen anytime soon?

Trade Idea: 2013-11-19 22:05

Is it just me or is a head and shoulders chart pattern forming on AUD/USD’s 4-hour time frame? The pair has just pulled up from its sharp dive from .9750 to .9300, and appears ready to retrace to any of these Fib levels:

audusd

In particular, the 50% Fibonacci retracement level might be a strong resistance level since it lines up with the .9500 major psychological mark and an area of interest. However, I’m seeing a bearish divergence forming right on the 38% Fib level, which could mean that Aussie bears are ready to push the pair back down.

As for fundamentals, we might see a little bit of dollar buying if the U.S. retail sales report comes in much stronger than expected. Other than that, the positive sentiment for the Aussie seems to be fading, as data from Australia hasn’t been very impressive lately.

What do you think of this trade setup? Should I wait for a higher pullback to .9500 or enter at market? Or should I stay out completely since I have a short AUD/CAD trade open? Looking forward to your feedback!

 

103 comments

  1. FxSniper

    Aussie continues to strengthen while many keep shorting against it. Once Today closed above 0.9420 area, I have no single doubt about much larger move up. I will keep adding to my long positions at each swing root and 0.9420 offers me another platform. I don’t see the pair falling just yet! And AUDCAD, I continue to hold to a bullish bias until there is none left! I am not sure if shorting AUDUSD will be wise at this moment.

    Reply
    • Happy Pip Post author

      I see. Thanks for sharing your thoughts! I’m also wary about shorting this pair since I already have an AUD/CAD short. I was able to adjust my stop to entry on that one for a breakeven trade though. Let’s see how it goes!

      Reply
    • Flavius

      i think de aud/usd will go down, till 0.89. i mean, come on guys, the governer is talking about aud being to high about two or three months now. Even the IMF said yesterday the the Aud its overvalued by 10%.
      so i’m short from 0.9370 to 0.89

      Reply
      • Happy Pip Post author

        It does appear ready to test its previous lows around .8900, especially now that it broke below the .9300 neckline. Did you short?

        Reply
        • Flavius

          yap, i’m short and i’m very glad. it seems that it broke .92 too. i’m thinking to increase my position. what do u think?

          Reply
          • Happy Pip Post author

            Good job at jumping in that selloff! It seems that it has enough momentum to head lower so I’ll probably wait for a quick retracement before adding. What’s your plan?

  2. FxSniper

    Current AUDCAD at 0.9830, is a very strong bullish cluster and should send the pair higher and higher. more robust buying interest should come in and end this tug of war off current rates… Same for AUDUSD, AUDJPY

    Reply
  3. AdrienA

    Hi,

    I share with you a bearish bias. However, I would wait the 0.95 level and also some price action indicating a bearish reversal on a daily frame. On Monday, a bearish pin bar formed on the daily chart, however it failed as price continued higher. However, if any bearish price action occurs at 0.95, it’ll be more robust and trustworthy.

    All the best,

    AA

    Reply
    • Happy Pip Post author

      Thanks for sharing your thoughts! I was waiting to enter around the .9500 handle too bit it appears the selloff resumed earlier than expected. Must be because of the strong US retail sales and pro-taper remarks from the FOMC?

      Reply
  4. Alex

    funny thing i have spotted h&s too but i was expecting lvl of 50% before looking down but i see have one more reason to open a setup on hidden bearish div ) could be good deal :)

    Reply
    • Alex

      If you have not opened an order, I would have waited a bit, because on the hourly chart hidden bullish div. And then maybe it is just the same now rebound from the 23.6. Also we have an rising channel on h4

      Reply
    • Happy Pip Post author

      Yeah I was expecting a higher pullback to .9500 too, especially since that lines up with a former support area. Looks like I got left behind!

      Reply
  5. just_the_pip

    I went short with 2 positions at 0.9415 and closed out 1 of them to bag 85 pips. I think a H/S is forming and any more talk of taper will also put significant downside pressure on AUD. That said, AUD has been staying stubbornly strong and I wouldn’t be surprised to see it climb back up.

    I’ll hold on to my 2nd position for the time being. If AUD/USD climbs back up to 0.945 and above, I’ll reassess and look for an opportunity to add to my short position. I look the look of that 50% fib retracement level.

    This is mostly speculative however and I won’t be making any significant short trades until it breaks trades the neckline

    jtp

    Reply
    • Happy Pip Post author

      Sounds like a good plan! I’m a bit bummed that it didn’t reach my entry area around .9500/50% Fib but, just like you, I still might wait for a chance to short around that area unless it starts making new lows. Congrats on your win though!

      Reply
    • Happy Pip Post author

      Yep, .9300 seems to be holding really well so far. Next support at the .9200-.9250 former resistance. Where’s your stop?

      Reply
        • Happy Pip Post author

          That makes sense. If .9300 breaks, it could mean a dip much lower before Aussie bulls push this back up. I’m long-term bullish too, just waiting to see where price will turn and if fundamentals will back it up.

          Reply
  6. mad4fx

    I look for the AUD$ to fall even further. I’ve been short on this pair since the break of 9600 with a target of 8900. Anyone that has done their homework would know that any buys right now would be against the trend. Also, research why the RCB wants the AUD lower. However, I’m not surprised that folks want to buy the AUD right now. This just confirms my philosophy of “Whatever the majority is doing, do the opposite”. Just my 2 pips.

    Reply
    • Happy Pip Post author

      Congratulations on that really good catch! It looks ready to head towards that .8900 support, hopefully gets there by the end of the year. Did you keep adding to your position? Or just trail your stop?

      Reply
      • mad4fx

        Thanks, HP. I use price action, bollinger bands, stochastics and RSI to identify when to tighten my stop and identify any weakness. At weak points I bank 50% profit and then add to my position once I see the next level has broken to the downside. This is a system that I’m comfortable with. Happy Trading!

        Reply
        • Happy Pip Post author

          Sounds like a pretty good risk management strategy. I’m trying to learn how to be able to lock in some profits without limiting my upside potential on trades. How are you able to determine “weak” points though? I’ve simply been trailing my stop and adding at retracements all this time, but I’m interested to try out new strategies like yours.

          Reply
          • mad4fx

            It is my belief that if you want to get the odds on your side when trading you should always enter a market with price strength on your side ( if bullish) or
            weakness (if bearish) If you want to win you need to trade with momentum.
            The momentum indicators I mentioned determine the strength or weakness of a trend as it
            progresses over time. The momentum is generally highest at the start of a trend and
            lowest at market turning points.
            Any divergence of directions in price and momentum is a warning of weakness; if
            price extremes occur with weak momentum, then an end of movement in the
            current direction could occur. I myself learned this from a really good trader. For this to work, you’ve got to believe that it works and stick with what works for you. Happy Trading!

          • Happy Pip Post author

            Thanks for sharing your trading “philosophy” madfx! Those are very valid points and I will be keeping them in mind as I enter/exit trades or manage my open positions. Happy trading to you as well!

    • FxSniper

      Problem is we don’t usually know who the majority is. You may end up being part of it that will be taken unless of course you have been trailing

      Reply
      • mad4fx

        Use the Commitments of Traders (COT) reports. Learn to use that report, research a little more and you’ll learn to identify who the majority is. Take Care!

        Reply
        • Happy Pip Post author

          Good point! I’ll make it a habit to check this one out also. Sometimes I get too caught up in forex price action that I forget to keep tabs on market sentiment and COT. Thanks for the reminder!

          Reply
        • FxSniper

          COT has nothing to offer me when it comes down to the hard question of where should I enter short or long. It does not tell me when a reversal is due and when not.. There are many important things that make much difference in the life of a trader that COT is silent about… I will stay long AUDUSD as it developes the next leg up. I expect more fights but we shall see how it goes. Good luck in your short order

          Reply
          • mad4fx

            May check open positions with your broker. I like looking at OANDA, they seem to be one of the largest brokers. You can look at the long/short open positions and get an idea of what the majority is doing. Keep in mind that 90-95% of retail traders lose.

            Final note, as long as China’s economy is slowing the AUD$ will continue to slip. The sentiment hasn’t changed. Good luck to you as well.

        • FxSniper

          We shall see by the end of this week. I will maintain my bullish bias and will be adding as it developes. Right now, I am content absorbing the negative tone. At 0.8919, I will become a AUDUSD loser. I just longed AUDCAD too and will hold accordingly

          Reply
          • Happy Pip Post author

            .8919 seems like a reasonable level. At that point though, I might consider a bullish bias since it’s a very strong support area.

  7. FxSniper

    After taking me out last week, I am longing AUD again against the USD, CHF and JPY! AUDCHF seems the most compelling of all and I plan to leave it for a good while unless my stop is taken below 0.8160. I will be booking AUDUSD and the other as they develope

    Reply
    • Happy Pip Post author

      I’m digging that AUD/JPY long setup! I might look into that myself, depending on whether it gives me a chance to catch a quick retracement or not. Keep me posted on how your trades go!

      Reply
  8. Pingback: NZD/USD: Break and Retest of .8200 | Forex Blog: Playing with Comdolls

  9. FxSniper

    While we are at AUDUSD, NZDUSD is also developing a really strong bullish one and any savvy trader should be long around current rates for some nice pops

    Reply
  10. FxSniper

    I adjusted and was broken even but I added it back after re-examining it. It was a quick 100 pip short fall. It is a big fight at these levels and whoever wins by friday, wins it!

    Reply
    • Happy Pip Post author

      Got my eyes locked at that AUD/JPY pair, too! It actually bounced off 92.50 already and is showing pretty good momentum. Fundamentals line up for a long also. Which levels are you aiming for?

      Reply
      • FxSniper

        96.10-98.50 medium term. 94.70 is the first level to aim for while working out of congestion. a pull back from there will lure in many more buyers

        Reply
        • Happy Pip Post author

          Cool beans. That’s a pretty good return-on-risk, depending on where your stop is placed of course. I’m considering buying as well, just waiting for a quick pullback like you mentioned.

          Reply
          • FxSniper

            92.23 is my stop and I will seek to neuter it once I can see h4 close above 93.00 or if it fails to close above it today, I will look for exit

          • Happy Pip Post author

            Looks like you got a nice good catalyst from today’s Australian data, plus we’ve got overall yen weakness on your side. So far so good!

  11. mad4fx

    AUDUSD, I’ve banked 50% of my profit. Stochastic and RSI are near my defined extremes. I’m anticipating a bounce back to .9200. Once I see a nice sell signal around .9200 then I’ll add-on to my short. My target is .8900. If this pair breaks .8900, then I will set a new target of .8500. Happy Trading!

    Reply
    • Happy Pip Post author

      Yeah these Aussie pairs are stalling at pretty solid support zones. That strong selloff could use a nice correction for now, it seems. To top it off, we have potential profit-taking ahead of the Thanksgiving weekend so we could see some bounces here and there. Thanks for sharing your trade update!

      Reply
  12. mad4fx

    “Australia’s dollar remained weaker as options showed traders are the most bearish in almost two months after central bankers reiterated they are concerned the currency is overvalued” (Reuters)

    Here’s how I’m viewing the AUDUSD – right now I’d look for a bounce to .9200, given data is showing that the three-month AUDUSD dollar risk reversal rate was minus 2.35 percent, which shows the demand for options to sell Australia’s currency. This would support a brief rally to the .9200 level. I would then look for a a sell signal at this level and target near the .8500 zone. We could even see new chart lows. If I see around the .9200 zone, I’d place a stop behind .9375 to keep away from the herd. That’s my 2 pips.

    Reply
    • Happy Pip Post author

      Yep, I’m keeping my eyes locked on that retracement area between .9200 to .9300 as well. If the rallies fail to push past those levels, I’m re-establishing my shorts and aiming for new lows. But if .9300 breaks, it might be a signal that the selloff is over, at least for the year. The RBA statement this week could set the tone for this though, care to share you thoughts on that? I really appreciate the insight!

      Reply
  13. FxSniper

    If AUDUSD bounces off current lows, 0.9300 would be the ideal target. 0.9200 area does not have much of a history behind it and should there be willing shorts there, I would be glad as that would be a good fodder for bulls

    Reply
    • mad4fx

      Perhaps. It would not be the first time I was wrong and certainly not the last. I still like .9200. We all have to stick to our plan; cut our loses early and let our profits run. Happy Trading!

      Reply
      • Happy Pip Post author

        Yep, that’s the plan! Happy trading to you too and keep me posted if you take any trades on AUD this week!

        Reply
  14. FxSniper

    AUDUSD is simply headed for 0.9330 imo. I keep going for it. Will book there and long further retracements preferably back down to 0.9200

    Reply
    • Happy Pip Post author

      I agree. That .9300 area seems like the line in the sand when it comes to these rallies so I think the pair would be attracted to that level in the near term. Once it reaches there though, I might consider shorting again.

      Reply
      • FxSniper

        Yes it is the nearest level with some clear history. I will try one short at 0.9350 and see if I can steal some 150 pips on it. If such a rejection ensues, I will be ready to be long at 0.9200 again

        Reply
  15. FxSniper

    Eurusd is poised for a wash and it could be as deep as 1.34 area. Im out of my longs and will long on nice dips!

    Reply
    • Happy Pip Post author

      Yep, looks like it broke below that wedge-like formation, peaking at the 1.3600 levels. Think it could still head down to 1.3400? I might take a quick short until it reaches that area.

      Reply
      • FxSniper

        It may or may not but 1.34 is the major support area that should give any bigger push the needed amo to attack any other resistance in front. The problem with shorting is that you are trading against a major bullish one and u don’t know the extent of any retracement. That is why the best strategy is to wait for dips and look for proper bottoming before going long again. It is right now at a minor support which might of course turn into a major one as the days roll by. You should look at 1.3480 all the way down to 1.3400 for signs of bottoming out. On the ej and gj, my short is not a biased induced one. It is a simple retracement play and I think it is the right time. I will hold a little more and see how they develope

        Reply
        • Happy Pip Post author

          I see. Yep that 1.3400 handle has held up quite well in the past few tests. Would be interesting to see if it’ll stay solid.

          Reply
          • FxSniper

            1.3480 is another spot for long term bulls to add. It is a good demand zone that may well hold the pair. I will consider having a position there while I wait for 1.34 for the remainder

    • Happy Pip Post author

      Hmm, what concerns me about a GBP/USD short is that the UK fundamentals are looking very strong. Then again, we have a bunch of red flags on this week’s schedule so there’s a chance the story could change and bears could pounce. We’ve got that BOE statement too so I might just wait for the events to play out before making a strong bias on GBP. Did you short already?

      Reply
      • FxSniper

        no. i am neither shorting eurusd nor gbpusd. That represents suicide in my opinion. I am just waiting for retracement back down to 1.6250 before joining back in. I believe it will make that figure before the week runs out so I will wait. If if can’t make that figure, then, I will be missing a great trade.

        Reply
    • Happy Pip Post author

      Oh I’m not too sure about shorting the yen at this point. Didn’t they keep mentioning that they’re ready to add stimulus if needed? I’ll probably just watch out for the ECB and BOE rate decisions to see if they’ll take the same dovish tone before deciding to short EJ or GJ. Did you take these already?

      Reply
      • FxSniper

        yes I took both of them already 139.28 and 168.16 respectively and will be targeting 50 percent on each or at least 38.1percent of recent rallies

        Reply
        • Happy Pip Post author

          Cool beans. Do you usually trail your stop when price moves a specified number of pips in your favor?

          Reply
          • Happy Pip Post author

            All right, I see. Just trying to get the hang of pressing my advantage while at the same time being able to lock in some profits. Thanks for sharing some insight in your trading style!

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