Free Profitable Forex Newsletter
Hey! This is Philip with this week's trade idea of the Free Profitable Forex Newsletter!
AUDUSD is finally moving lower this week, the largest weekly decline since March. The resilient uptrend that started from the COVID-induced lows may be over.
However, leaving the longer-term weekly chart aside, we know that nothing moves in a straight line. And presently, there is good potential for a smaller bounce on AUDUSD within this bearish leg. This would be a tactical opportunity, based on the harmonic butterfly pattern and not so much on the fundamentals (you can read more about the butterfly pattern on our website here).
However, we must keep in mind that the longer-term USD bear trend that started in March/April is still the consensus view. Many USD bears are likely to use the recent moves as opportunities to sell the USD again. These activities should provide a tailwind for this tactical AUDUSD trade.
While there is definitely potential for the USD upside correction to extend, and AUDUSD to slide further down, a bounce seems more probable in the short-term, particularly because we have the harmonic butterfly pattern and other bullish signals appearing here.
Butterfly pattern points to 0.7140-0.7142 as the minimum upside target
We show the bullish butterfly structure on the 4-hour chart below. It can also be seen on the daily chart, but intraday charts tend to work better because they’ll give us more details about the price action.
The butterfly structure starts with the low on August 20 and has likely ended with yesterday’s low (see chart). The price has overshot the butterfly’s harmonic support area a little but has now bounced back above it. So, the harmonic support is holding, and the pattern is activated.
What this means, is that we aim for the price to rise to at least the 38.2% retracement of the September 16 - September 24 bearish leg. This puts the distinct 0.7140-0.7142 zone as the minimum target for this trade.
Harmonic patterns often also achieve the 50% and the 61.8% retracements of the most recent bearish leg. In this case, those are the 0.7180 level (50% Fib R) and the 0.7220 level (61.8% Fib R).
In some cases, harmonic patterns lead to complete reversals, and the price moves above the previous high. However, that seems highly unlikely in this case with AUDUSD. The maximum it can rise is more likely to be somewhere around the 50% or 61.8% retracement level.
Additional bullish signals that increase our confidence in this trade are:
- AUDUSD has broken out of a converging falling wedge pattern (see the chart). This is usually a highly reliable reversal pattern. Combined with the harmonic butterfly, it increases the probabilities for a bounce higher.
- The 4-hour RSI is deeply oversold, confirming that AUDUSD is overdue for a correction on lower timeframes.
Entry:
- Look to enter around current levels (0.7085); or
- Preferably lower if the market offers such an opportunity
Stop loss:
- Below the low of the butterfly pattern at 0.7015
Target:
- 0.7140-0.7142 zone, 38.2% Fib retracement
- 0.7180 level, 50% Fib retracement
- 0.7220 level, 61.8% Fib retracement
Trade signals from the past weeks
- September 16 – Long USDCAD from 1.3180, target reached at 1.34 = +220 pips profit
TOTAL: +220 pips profit in the past week
TOTAL: +2970 pips profit since October 1, 2018
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Thank you!
High Risk Warning: Please note that foreign exchange and other leveraged trading involves significant risk of loss. It is not suitable for all investors and you should make sure you understand the risks involved, seeking independent advice if necessary.
Any opinions, news, research, predictions, analyses, prices or other information contained in this newsletter is provided as general market commentary and does not constitute investment advice. FX Trading Revolution will not accept liability for any loss or damage including, without limitation, to any loss of profit which may arise directly or indirectly from use of or reliance on such information.
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