AUD/USD Contrarian Play:
Everywhere you go online, you will see a case to be bearish AUD/USD.
The RBA is going to cut rates again. The Fed is going to hike in June. The Fed is going to hike in July.
Blah blah blah, quote after quote, headline after headline. ALL bearish AUD/USD.
But what happens when you get the entire forex trading universe all on board with the one trade? The perfect chance for an intelligent, contrarian trader to take advantage of the re-pricing if things don’t quite go to plan!
Funnily enough, we got this from St Louis Fed President James Bullard overnight:
“My sense is that markets are well-prepared for a possible rate increase globally, and that this is not too surprising given our liftoff from December and the policy of the committee which has been to try to normalize rates slowly and gradually over time.”
Throw out your textbooks before you read anything further, but I will also ask what are the chances that when the Fed hikes in June or July, will the first USD lurch actually be a drop?
The hike is coming, everyone knows its coming. The question now becomes how much of it is actually priced into forex markets?
Moving forward and onto the AUD/USD charts, I wanted to highlight the fact that for me, price is actually bullish on the weekly chart.
I’ve highlighted the weekly trend line I’m talking about with also some key weekly horizontal levels thrown on for good measure.
Of course you could make the argument that price has in fact broken out of the long term support level and has already headed (relatively) much lower. But the idea that these long term, higher time frame levels are subjective and should be treated more as a support/resistance zone rather than a hard level has been discussed in our AUD/USD trend line subjectivity blog back in 2015.
Zooming into the hourly chart and you can see that price is sliding down inside another bearish channel. A bearish channel inside a bearish channel and I’m making a case for a bullish setup? I know, but bear with me here…
We are technically still in a higher time frame bullish trend and these bearish channels could be just as easily interpreted as flag patterns back into demand. Price has now printed a double bottom on the intraday charts and somewhere to manage your risk around if we start to rally from this point.
The more conservative traders among us who like to wait for some sort of confirmation that the level has held and a bounce is happening could still trade the following 15 minute setup.
Here we have price bouncing off the weekly support level which is also acting as a double bottom on the hourly. Price has then bounced out and the confirmation was the re-test of the most recent lower time frame consolidation area highlighted here on the 15 minute chart.
If you missed this boat as price re-tested back into consolidation, the actual swing low is still only 30 pips away at the time of publishing this post and allows for great risk:reward in your setup if you’re happy swimming against the tide.
With AUD building approvals on the calendar this morning, the setup has some event risk surrounding it, but the longer term case is there regardless.
On the Calendar Tuesday:
AUD Building Approvals m/m
CAD GDP m/m
USD CB Consumer Confidence
Just keep in mind that we’re still going to be sitting in the shadows of Memorial Day US holiday price action during today’s Asian session. With the US just having knocked off, nobody worthwhile on that side of the Pacific is going to be rushing to get their orders in for the night.
Yesterday’s AUD/USD 38 pip daily range was true, textbook holiday trading conditions.
Dane Williams – @VantageFX
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