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Forex: Ideas You Can Trade - AUDUSD bearish momentum tests confluence of support

Posted by Steven Hatzakis on Jul 12, 2013 9:29:00 AM

AUDUSD: Bearish momentum tests confluence of support near .9000

The short term daily candle chart below shows AUDUSD following a short term bearish channel (point 1 on chart) which it failed to break out of in the prior two sessions and now following a short term bearish support line (point 3) consistent with prior short term bearish momentum within this channel (point 2) and trading near .9055 (as of publication).

The new multi-year lows reached for today near .9000 - a psychological static support level- coincide with an intersecting long term bullish support line (point 4) and with the median line of the bearish channel (point 1). This confluence of support could be sufficient to reverse the bearish momentum of the prior two daily candles and perhaps the bearish medium trend overall if there is a breakout to the upside of the bearish channel (1) which could be provided via a very-short term bullish support line such as those observed within this channel (point 4). The bearish momentum overall and channel, among others, were discussed in a previous article about the AUDUSD in mid June 2013 and more recently in another previous article in early July 2013 on the AUDUSD pair.

If AUDUSD, fails to hold support around .9000 which coincides near the median line or linear regression of the bearish channel (point 1) then a test of the lower line of the channel may ensue which could coincide near .8700 if the current short term bearish trend line is sustained (point 3). Therefore, traders may watch closely as to whether support on the long term line near .9000 will provide a sufficient bounce to reverse the trend or whether the bottom of the channel will be a new target if current support fails.

Below are examples of how to trade a bearish continuation or a bullish reversal:

1.  BULLISH BUY ENTRY ORDER: Create a “Buy Entry Stop” @ .9120 with a Limit to take profit @  .9166 and a stop-loss @ .9089 Risk/Reward Summary: Limit risk = +46 pips profit / (-31) Stop-loss risk = Gain to Loss ratio =  1.48

2.  BEARISH SELL ENTRY ORDER: Create a “Sell Entry Stop” @ .8987 with a Limit to take profit @ .8901 and a stop-loss @ .9044 Risk/Reward Summary:   Limit risk = +86 pips profit / (-57) Stop-loss risk = Gain to Loss Ratio =  1.51

audusddaily july 12 2013 note

 

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