Top Trade Idea For November 12th, 2014 – AUD/USD
Against the odds, the AUD/USD has somehow managed to climb back above the key 0.8660 support level this week despite breaking and holding below it for a few days of last week. This is a potential false breakout scenario, which suggests that there was a lack of supply – or willingness from the sellers to enter short – below this multi-year low. Thus from a purely technical point of view, the behaviour of price action here suggests that rates may have bottomed out for now and that some gains could be on the way in the near term. That said, the Aussie is yet to break above some important resistance levels that are now approaching fast. At this stage, therefore, this potentially bullish scenario should be taken with a pinch of salt. Indeed, given the underlying bearish trend, I wouldn’t be surprised to see another leg lower in spite of the bullish-looking price action of late.
In the very short-term, traders should watch the area around 0.8760/70 very closely, should we get there. Only a decisive break above here would end my still-bearish outlook, for this is where several technical factors converge. For a start, the 0.8760 area was last week’s high; therefore there could be a batch of stop loss orders sitting some distance above it. If these get triggered, we could see a sharp move towards the next key level of resistance at 0.8900. Given this possibility, it will be in the exiting bears’ interest to try and defend this key technical area as much as possible. Therefore we may see increased selling activity there, which could push rates lower at least in the short-term.
What’s more, as can be seen on the 4-hour chart, a short-term bearish trend line meets the 61.8% Fibonacci retracement level of the last downswing. Not only that, the point D of a Bearish ABCD Gartley pattern also comes in around 0.8760, making this level even more interesting for the technical traders. The Gartley is a Fibonacci-based, symmetrical, pattern which looks like two connected triangles. As it is a widely used technical tool, sometimes it can pinpoint the exact top and bottoms. However given the potential false break on the much higher weekly time frame, this particular Gartley pattern should be treated with extra care. Indeed, if price refuses to do what the Gartley or the other technical tools suggest it should, traders should treat that outcome as a major bullish sign.
About Fawad Razaqzada
Fawad is FOREX.com’s technical analyst based in London. He entered the FX market in early 2010. Having graduated from Brunel University with a degree in economics, and mentored by some of the industry’s leading experts, he has an excellent understanding of the fundamental drivers of the markets. But it is his unique ability to predict price moves using technical analysis that has made him popular amongst his peers. Fawad is regularly quoted in the leading financial publications such as the Wall Street Journal, Reuters, Market Watch, FT and Associated Press. On a day to day basis, Fawad produces and delivers market commentary and research for FOREX.com, with an emphasis on technical analysis. He achieved his CISI Level 3 Certificate in Investments (Derivatives – Retail) in early 2011.