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Entering the AUD/USD Pullback Is All About Timing

February 27, 2014

Benjamin Spier

Talking Points:

  • AUD/USD remains on a long term downtrend
  • The daily Aussie chart lacks directional bias
  • Wait for a break of support or resistance before entering the trade

    There has been no question that the Australian Dollar is trading in a long-term downtrend against the US Dollar since the pair broke below the 2.5 year low in June of 2013. AUD/USD then continued to set new 3-year lows in January 2014, but only after posting a healthy 50% pullback of the original move lower. However, with a second pullback of the downtrend underway, traders must now consider if and when to enter the possible continuation of the downtrend.

    AUD/USD Weekly: February 27, 2014

    Entering_the_AUDUSD_Pullback_Is_All_About_Timing_body_Picture_3.png, Entering the AUD/USD Pullback Is All About Timing

    Looking at a daily chart, we see that when the Aussie broke out of the second leg of the downtrend, the pair continued to trade in a less shallow downtrend around the start of the New Year. But that down trend was also broken earlier this month, when a period of sideways trading unconvincingly brought the pair above the upper channel.

    AUD/USD Daily: February 27, 2014

    Entering_the_AUDUSD_Pullback_Is_All_About_Timing_body_Picture_2.png, Entering the AUD/USD Pullback Is All About Timing

    Although AUD/USD continues to trade above the upper trend channel, the pair tested and failed to break above the 2-month high at .9086, which may scare traders away from trying to place bets on AUD/USD rising further. On a 4 hour chart below, we also find an upward trend line from early February that may continue to provide support, and the 2-month high at .9086 in January may continue to provide resistance.

    AUD/USD 4-Hour: February 27, 2014

    Entering_the_AUDUSD_Pullback_Is_All_About_Timing_body_Picture_1.png, Entering the AUD/USD Pullback Is All About Timing

    Traders looking to short the Aussie against the greenback should wait for a convincing daily close below support by the upward trendline, while those expecting a further pullback to the long-term downward trendline from the weekly chart should wait for a daily close above the January high.

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    Source: DailyFx

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