the AUD/USD has been on an impressive uptrend for several weeks. This could be a longer-term trend change, but a bearish correction should be due first.
This analysis will take a look at potential reversal setups for the this currency pair, which could be ripe very soon.
Signs are Pointing Towards a Bullish Trend Reversal
The extremely strong bullish momentum over the last few weeks has changed the bigger picture for the AUD/USD somewhat. What looked to be a a sturdy downtrend in the later part of 2017, looks rather choppy and weak compared to the intense bullish momentum since December. This makes me lean towards the possibility that the down trend was part of a large ABC of a wave 2 perhaps, which is now followed by a bullish uptrend continuation. We can’t know for sure right now, but the upwards thrust has created a significant reading on the Fisher and AO indicators of the daily chart, which suggests that the movement could have quite a bit more upside in stall.
However the time does appear to be ripe for at least a temporary bearish correction.
Lower Time Frames Make the Case for a Correction
The 4 hour and 1 hour charts below reveal numerous signs that could indicate an imminent correction downwards:
- A significant divergence is present (see AO at the bottom of the chart)
- There is a good chance that at least turquoise wave 3 is about to be completed. The 1 hour chart shows the scenario of a possible rising wedge/ ending diagonal as the final wave 5 of turquoise wave 3. But the diagonal scenario cannot be confirmed yet, it requires more candles to form still.
- Price has started to grind up slowly towards a strong POC zone at 0.7880 – 0.7900, which consist of the round number itself, the 61.8% Fib level of the late 2017 downtrend, a combination of monthly and weekly pivot points (Monthly R1, Weekly R2), and some resistance trend lines of bullish the move itself.
Potential Trade Setups
Aggressive traders could consider placing a pending sell order at the POC zone. A first prudent target would be 0.7800, which is roughly the 38.2% Fib retracement level of turqouise wave 3 if it indeed ends at the POC zone. There is room for a fall down to the 144 EMA of the 4hour chart, but the strong momentum suggests that price could bounce sooner than that and start turquoise wave 5.
The safer trade setup would be to wait for a break of the 21 EMA on the 4 hour chart, wait for a pull back and retest of the EMA, and then sell the second bearish bounce.
All the best along your trading journey…
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