Scalping the Waves- AUD/USD Emotions Run High

DailyFX   |  February 16 2012 3:53 EST

The Australian Dollar has reached a critical juncture with wild price swings producing a highly emotional environment. Here are the key levels to watch within the broader structure of the aussie’s advance.

Wild price swings have produced a highly emotional AUDUSD environment. Bulls contend that the dip offers a buying opportunity while bears are proclaiming a doomsday scenario for risk trends in general. As long as price is above 1.0569, we’ll side with the bulls.

Daily Chart

As focused on in the Daily Technicals recently, the AUDUSD decline is probably a 4th wave correction within the 5 wave advance from the 12/15/11 low. The floor is strong as price is holding its Elliott channel (line parallel to waves 1-3 extended from wave 2), 20 day average, and February opening range. Bullish objectives are the 2011 high at 11080, and common Fibonacci relationships. Wave 5 = 1 at 11153 and wave 5 = 61.8% of waves 1-3 at 11236. These levels intersect the channel on March 5th and March 9th. I like longs on dips between 10715/40 with a stop under 10645.

Scalp Chart

Interim resistance for the aussie stands at the 123.6% Fibonacci extension taken from the December 19th and January 8th troughs at 1.0765 backed by 1.0785 and 1.0820. A breach above our topside limit offers further conviction on our bias with such a scenario eyeing subsequent topside targets at the 138.2% extension at 1.0840, 1.0875, and the 150% extension at the 1.09-figure.

Interim support rests at 1.0735 with subsequent floors seen at the 1.07-handle and 1.0680. A break below our bottom limit at the 100% Fibonacci extension at 1.0648 negates our short-term bias with such a scenario eyeing subsequent support targets at 1.0620, the 1.06-figure, 1.0570. If this level is compromised our medium-term bias flips to the downside with extended targets held at the 76.4% extension at 1.0530, 1.0490, and the 61.8% extension at 1.0455. An hourly average true range of 25.54 yields profit targets of 20-22 pips depending on entry. Should ATR pull back dramatically, adjust profit targets as needed to ensure more feasible scalps.

*Note that the scalp will not be active until a break above 1.0765 or a rebound off 1.0735 or subsequent support level with RSI conviction. We will remain flexible with our bias with a move passed our bottom limit at 1.0648 eyeing downside targets.

Key Thresholds

---Written by Jamie Saettele, CMT, Senior Technical Strategist and Michael Boutros, Currency Strategist with DailyFX.com

To contact Jamie e-mail jsaettele@dailyfx.com. Follow me on Twitter @JamieSaettele

To contact Michael email mboutros@dailyfx.com or follow him on Twitter @MBForex

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Jamie is the author of Sentiment in the Forex Market.