Some of you might be wondering why I did not close my short last night or earlier today before the housing and CapEx data. Here’s my outlook for this pair which explains why I am still short.
The big picture in AUDUSD is that it is in a downtrend. The daily is showing signs of basing around here, but the formation is not complete and can also be interpreted as a consolidation before another leg lower.
On the 4hrly chart, we had a clear double top made at 0.9233 on 16 August which was validated by the neckline break (0.9079 on 20 August). The target of this double top is around 0.8885. Double tops are interesting (as also double bottoms and H&S tops/bottoms) because they reach their measured move target in about 90% of the cases. I have verified this myself by counting on the charts of the past 10 years. [Yes, pathetic I know. I don’t have a life ;-). But on the other hand, I really wanted to know the answers to such questions.] These are highly reliable patterns. And in almost every case the pair will overshoot the target.
Last night’s low of 0.8993 was close to the double bottom target, but there is another reason for holding on. The recent low at 0.8850 is a very attractive target for stop hunters so there is a high probability that it will be tested, and likely broken. This is why I am still holding on to the AUD short. Hope the pair behaves as per previous form.