By: Mike Kulej
One of the more reliable chart patterns, as classified by market technicians, is the rounded bottom. This chart formation is relatively easy to recognize while forming, due to its very distinctive shape. Once the rounded bottom is completed, it provides very strong support. The theory behind it is that since it takes a fairly long time to develop (within the time frame used), everybody who wanted to buy or sell in that general area is already committed, with not many orders left behind.
Currently the intermediate term chart of the EUR/AUD cross is in a process of building a rounded bottom. It is not confirmed yet, but so far, it has a classic look. After the recent bullish move from 1.3960 to 1.5000, this pair pulled back to about 1.4350 in July. This corresponds with a 62% Fibonacci retracement level where reversals often happen. Here the price action contracted sharply, taking on this rounded shape. Other technical indicators also suggest more activity ahead. The ATR is near lows for this chart, something that should change soon, while the MACD is approaching the zero line, indicating possible positive reading ahead.
Because the rounded bottoms are very shallow, they offer great risk/reward potentials. If the pattern is completed here, the resulting bullish move could get to 1.5000, with a logical stop loss at 1.4320, just under the lowest point of this formation. Worth watching.
By: Mike Kulej