AUD/USD Forex Signal: Bearish Head and Shoulders at 0.7200

Adam Lemon

The Australian dollar has been weak since markets opened this week.

Previous AUD/USD Signal

Last Tuesday’s AUD/USD signal may have produced a losing short trade from the bearish price action which rejected the resistance level I had identified at 0.7223, although I did warn there were unlikely to be any good trade opportunities in this currency pair over that day.

Today’s AUD/USD Signals

Risk 0.75%

Trades must be taken before 5pm Tokyo time Tuesday.

Short Trade Ideas

  • Short entry following a bearish price action reversal on the H1 time frame immediately upon the next touch of 0.7223 or 0.7293.
  • Place the stop loss 1 pip above the local swing high.
  • Move the stop loss to break even once the trade is 20 pips in profit.
  • Remove 50% of the position as profit when the price reaches 20 pips in profit and leave the remainder of the position to ride.

Long Trade Ideas

  • Long entry following a bullish price action reversal on the H1 time frame immediately upon the next touch of 0.7196 or 0.7123.
  • Place the stop loss 1 pip below the local swing low.
  • Move the stop loss to break even once the trade is 20 pips in profit.
  • Remove 50% of the position as profit when the price reaches 20 pips in profit and leave the remainder of the position to ride.

The best method to identify a classic “price action reversal” is for an hourly candle to close, such as a pin bar, a doji, an outside or even just an engulfing candle with a higher close. You can exploit these levels or zones by watching the price action that occurs at the given levels.

AUD/USD Analysis

I wrote last Tuesday that the technical picture was basically weakly bearish. I thought that if the price got established below 0.7177 it would probably fall to 0.7150 at least. I also thought that long trade from a bullish bounce t 0.7123 if reached would look attractive.

I was wrong on both counts: bulls in the end made another higher low and pushed the price up past even the resistance level at 0.7223 which initially held for a couple of hours.

The technical picture now seems to have come full circle, as after rising quite strongly over the past week to exceed even the round number at 0.7300, the price has fallen again and is encountering similar pivotal support and resistance levels, most notably the old resistance level at 0.7223 is still in play. In fact, this resistance level is forming the upper boundary of what appears to be a symmetrical bearish head and shoulders pattern, with the lower neckline boundary at about 0.7196. This suggests that the thing to watch for here is to see which happens first:

  • A bullish breakout above 0.7223 which will suggest the price will continue to rise, or
  • A bearish breakdown below approximately 0.7190 which will suggest the price will continue to fall.

It looks like this will be a good Forex currency pair to trade today as the price action seems clean and with a healthy volatility, on what is likely to be a quiet Monday, especially due to today being a public holiday in the USA.

AUD/USD

There is nothing of high importance scheduled today concerning either the AUD or the USD. It is a public holiday today in the USA.

 

Adam Lemon

Adam Lemon began his role at DailyForex in 2013 when he was brought in as an in-house Chief Analyst. Adam trades Forex, stocks and other instruments in his own account. Adam believes that it is very possible for retail traders/investors to secure a positive return over time provided they limit their risks, follow trends, and persevere through short-term losing streaks – provided only reputable brokerages are used. He has previously worked within financial markets over a 12-year period, including 6 years with Merrill Lynch.
Learn more from Adam in his free lessons at FX Academy

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