So far this week the Australian Dollar has surged against the US Dollar, adding further gains to last weeks rally.
This surge in price has highlighted a major potential turning point in this financial instrument from which to place a counter trend trade and bag some pips.
We have a triple confluence trade set up forming. Price has risen inside the weekly supply zone from which we saw a drop in May 2015. This area is likely to contain a significant amount of sell orders from the large institutions hoping to short at a bargain price. We also have the trend line (blue) which price has broken and tested many times in the January 2016. Price action around this trend line is of high importance to confirm the short. To round up our reasoning behind selling this pair we have relative strength index approaching over bought conditions on the weekly time frame. If you drop to the daily chart we are seeing extreme over bought conditions. The likely hood of a retracement is high.
With regards to entries, anything inside the highlighted supply zone will yield good results, although a short at the trend line is the prime entry. Stops above 0.8080 should keep the trade in play should we see the market attempt a short squeeze. We have a number of profit targets to aim for. The next weekly demand zone is 0.7710. We also have the trend line (Green) which has help up price for quite some time as a secondary medium term target.
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