AUD/USD: Simple Retracement Play

Just when I thought AUD/USD would never look back from its selloff, the pair makes a quick retracement this week. Time to hop in?


On its 1-hour time frame, it can be seen that the pair retraced to the 50% Fibonacci retracement level, which lines up with a former support area. To top it off, a bearish divergence has formed, with price making lower highs and stochastic drawing higher highs. Thanks for pointing this out, Big Pippin!

Fundamentally, the Australian dollar is still at a weak spot, given the downbeat outlook for China and the emerging markets. It doesn’t help that data from Australia has been disappointing lately and that risk appetite is low.

Of course I’ll be keeping close tabs on the upcoming U.S. durable goods orders and CB consumer confidence releases, as well as the much-anticipated FOMC statement on Wednesday. For now, I’m thinking of shorting at market, with a stop above the .8900 major psychological level and a target of .8600. What do you think?


Happy time

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  • Albert

    I’m with you, shorting AUD/USD. Then again I wouldn’t do it now, but after FOMC 😉

    • Happy Pip

      Hmm, that’s a fair point. Never know what surprises could come up! I might adjust my risk ahead of the event though.

  • Will Howie

    This may seem like a silly question and I’m new to the forex world however which broker allows you to add the shaded areas (i.e. the purplish colour marking your support/resistance zone) as I have seen on so many of these blogs? All I am able to do is draw lines, which can sometimes be visually deceptive and it would be awesome to be able to create the “zones” like you guys.
    And thanks for the blog! I shorted AUSUSD at the 61.8 Fib level 🙂
    Appreciate it.

    • Justin

      If you are using MT4, go to insert in your toolbar and highlight shapes. You can use the rectangle to highlight and shade areas.

      • Happy Pip

        This one works too! Thanks for sharing.

      • Will Howie

        Thanks! easy fix, thank you very much.

    • Happy Pip

      I use Xtick charting software to add lines and indicators on my chart then I make additional marks using Adobe Fireworks. Hope this helps! Good luck to us!

  • Hutch

    Hi! Just on the divergence, can I please ask how strong is the signal given the distance between the stochastic highs? I think you are using 1H so if your stochastic is a standard 14,3,3, it may be showing a peak versus the past day, whereas the divergence line stretches back to jan 22.

    Keen to see how it develops

    • Happy Pip

      Yep, I’ve got the 1-hour chart up and the highs are from Jan 22 and Jan 28. I generally just stick to the “strict” highs on the stochastic to compare if they’re higher or lower. This can also be seen on the 4-hour time frame. Thanks for checking out my blog!

      • Hutch

        Understood! Thanks for clarifying! It certainly backs your overall position.

        I guess if we were looking at price making higher highs, and the stochastic showed a divergence across a similar time frame (ie Jan 22-28), would you want much more backup (eg as you say on H4 or longer perhaps + other key pointers) before shorting. I totally get what you say on the strict high comparisons (as thought long and hard about it!), but kinda feel better myself if the periods of measurement overlap between each stochastic being compared. Unsure if that has a real statistic flavour or just my gut!

        Will keep following your blog of course, and also love AUD 🙂

        • Happy Pip

          Hey, if that strategy works for you, then just go for it! I do get what you mean about similar periods of measurement when it comes to divergences though. Makes sense!

  • Inyama Ugochukwu

    I am already on a short position on this pair. You are actually thinking what i am thinking.

    • Happy Pip

      Ha! Glad we’re on the same page. What price did you get in?

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