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Forex: Ideas You Can Trade- AUDUSD Breaches Critical Long Term Line

Posted by Steven Hatzakis on Dec 4, 2013 1:21:00 PM

AUDUSD: Price Dive Breaches Critical Long Term Support Line, Support In Question  

The daily candle chart below shows price history of the Australian Dollar (AUD) versus the United States Dollar (USD) over the medium term. This pair is know by the symbol AUDUSD and is currently trading near .9020 as of publication, following a steep dive today that breached a critical long term bullish support line (point 4) that has been instrumental on many occasions in recent years. This follows comments yesteday from the Reserve Bank of Australia, that its nations currency was still "too high", as reposted by the WorldWide Markets Community.

Taking a closer look, the chart has been zoomed-in and shows that since the last post of the AUDUSD pair in the Ideas You Can Trade series, that the support line has been breached, and the fate of the AUDUSD over the short term may be less certain as support has faltered.

Probably not a coincidence, the low for today’s prices intersect with three points:

a) the lower line of the short term bearish momentum (point 3 in yellow) that the pair has been following on its current trajectory since October 23rd, and,

b) together with the median line of the medium term bearish channel (point 1 dotted-line in magenta). 

c) the pyschological level of .9000 (low was .8997), a key horizontal static price level.

If these three levels fail to prevent further bearish price action, and the long term bullish trend line (point 4) cannot be regained in the immediate short term,  AUDUSD could test near .8892 and .8845, respective low’s reached in August.

If the long term bullish support line (point 4) is regained, which could indicate a false breakout to the downside, or if a steep reversal follows up a line such as that of previous very-short term bullish support lines (like point 5 in aqua), a medium term channel could appear by drawing a support line equidistant in slope to from the line drawn above it (example in chart using point 2 in blue) if support is found near current levels.

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

1.  BULLISH BUY ENTRY ORDER: Create a “Buy Entry Stop” @ .9057 with a Limit to take profit @ .9074 and a stop-loss @ .9038 Risk/Reward Summary: Limit risk = +20 pips profit / (-19) Stop-loss risk = Gain to Loss ratio = 1.05  

2.  BEARISH SELL ENTRY ORDER: Create a “Sell Entry Stop” @ .8997 with a Limit to take profit @ .8934 and a stop-loss @ .9021 Risk/Reward Summary: Limit risk = +63 pips profit / (-24) Stop-loss risk = Gain to Loss Ratio =  2.62

 

Medium term daily candle chart:

 audusddaily december 4 2013 note resized 600

 

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