AUDUSD
The AUDUSD pair is one of the currency pairs that outperformed so far in the pandemic. Fueled by higher commodity prices and a weak USD, the pair rose to well above the 0.70 level.
Closely correlated to the U.S. stock market, it reacts quickly to changes in the Dow Jones or S&P500 indices. If the same is valid the other way around, we may argue that the stock market is due to a bigger correction, as the AUDUSD pair completes a rising wedge pattern.
Gold was rejected (again) at the $2,000 level and quickly moved lower on the FOMC August minutes. The minutes did not reveal anything new, besides from the fact that the Fed is not quite interested in going full Japanese with YCC (Yield Curve Control) measures.
Nevertheless, the USD made a U-turn, stocks fell, gold did the same – and AUDUSD reversed too. With no important economic data left for the remainder of the week, it is important to see if the USD reversal extends or it is just a simple correction from the lows.
The huge rising wedge points to troubles for AUDUSD bulls. Moreover, as it is often the case, the price formed a bearish divergence with the RSI – another sign of trouble for the Aussie pair.
However, trading such divergences or wedges is tricky. It is not the first time when the wedge appears to have broken. Nor the first time when the price diverged from what the RSI showed. Therefore, consider waiting for a move below 0.7075 before going short. Such a move will invalidate the higher lows series that typically forms in rising trends. Next, place a stop loss order at the rising wedge’s highs. Finally, measure the distance from the entry to the stop and set the take profit level by using a 1:2 or even 1:3 risk-reward ratio.
