Range or Trend?

I'm looking at the AUDUSD Daily and Weekly charts this morning and see an obvious but very strong resistance level at the .7330 levels.  Just like with any resistance levels the big question is always: are we going to break it or are we going to bounce back? 

On the daily chart the resistance line is very clear and show a few very close previous touches:
On 10/14/08 we reached .7236.
On 01/06/09 we reached .7265.
On 01/07/09 we reached .7267.

And finally since 02/04/09 we've been flirting with the highs and stayed in a range between .6972 and .7382.

The weekly chart shows a very nice pattern of 1 2 3 4 reversal.
The 1 level being at .6006.
The 2 level being at .7267.
The 3 level being at .6246.
The rule of th2 1 2 3 4 reversal technique is that if level 3 goes lower than level 1 and then turns around and goes higher than level 2 (point 4) then we are ready for a new trend in that direction, in the case of the AUDUSD chart, we are ready to go up.

If we do cross the resitence level and look to the left on the chart from where we are today, the pair is in the clear to move all the way to .8200 with no problems, there is really no noise in between here and there!

Up reversal and trendline break pointing to a stronger Aussie.

The weekly chart of the AUDUSD is currently showing two very good setups pointing to a higher Aussie in the weeks ahead. The time frame of these trades is based on the weekly chart, so we should be very patient and allow them enough time to realize all of their potential which could take several weeks, perhaps until early April. We should also keep an eye on the entry points of these trades and review them at the end of this week as things might change depending on how the pair closes the weekly candle.



Starting with the trend line break, the entry point for the break is at .6780. This entry point might change depending on how this week ends but we should proceed with the current price levels and set .6780 as our entry level. The take profit target of this trade is at .8862 which if reached would give a remarkable 2082 pips profit. The stop loss of the trade should be placed at the previous lows of .6006 or 774 pips from out entry. The reward to risk ratio of this trade equals 2.69 which is really good and one not to be missed.

I marked the different price levels for the 1 2 3 4 up reversal in the chart above. This strategy is very straightforward, if the pair tries to make new lows and fails it will most likely reverse to previous highs before the decline. If we cross the price level 2 (marked by number 4 on the chart) then we should be on our way to our target of .8260. The entry of the trade should be set right above price level 2 (price level 4 on the chart) or .7270 and the target should equal the distance between 2 and 3 which counting from our entry point, number 4, would put us at .8260, the stop loss should be set to the most recent low of .6246 (3 on chart). The reward/risk ratio for this trade is only 0.97. Normally I would not recommend a trade which this type of reward/risk ratio but since we've combined this trade with another, both going the same direction I think the trade is safer than explained from the ratio.

If these entry points are reached within the next couple of weeks we should be on our way to very good gains.

Are good times for commodity currencies coming soon?

It is safe to say that most of us agree that the economy moves in cycles.  Although sometimes differently labeled those cycles are: Peak, Recession, Trough, Expansion and repeat.  Last week, the National Bureau of Economic Research declared that the U.S. has been in a recession for the past year.  (National Economic Trends 12/08) By doing a little bit of online research or remembering economics classes, you will find that historically, the best investments during a recession are in commodities, so there lies the question: Is this the time to go long commodity currencies?  Looking at the AUDUSD and USACAD weekly charts, it sure does seem like it and here is why.

If we look at the AUDUSD chart below, the pair had a beautiful run up from .4773 in April 2001 to .9847 in July 2008 which was followed with a decline to .6326 in October 2008.  That's right, it took the Aussie 4 months to give back close to 60% of its gains against the Dollar in over 7 years.  Now that the decline has slowed and the pair has been ranging for the past 8 weeks, I believe we have a very good opportunity for a reversal and a move up which will coincide with commodity strenght if the theory of commodities doing well in U.S recessions holds true.  The green line on the chart below represents a DeMark break or a trend-reversal trigger, it will most likely take another couple of weeks before the trade is ready for our investment but we will keep an eye on the pair over the next few weeks and see when the time will come.  As it stands today, the BUY opportunity will come at around 0.6820.

The Canadian chart shows a very similar story, decline from 1.6196 in December 2001 to .9056 November 2007 to just about a 56% retracement in October 2008 (to around 1.3015) and now a question of the existence of a sell opportunity?  The red line in the chart below indicates a point of trend reversal, unlike the Aussie, the Canadian seems to be ready for its reversal now.  The prime entry level for the pair is a short at 1.2450.