Great opportunity in the AUD/USD (20-05-2008)

Sometimes you see something in the charts and you say: Wow! If this is a valid setup the gains could be phenomenal. This is the case now for the AUDUSD. The attached weekly chart of the pair is showing one of the best opportunities (for the long-medium term) that could be seen for a long time.

The decline of the US Dollar with the interest rates differential between the two currencies have moved the pair on and on until these very days. Now, the chart is saying that maybe, and it is always a maybe, the bull market is coming to some momentary end here.

In the price window:

1. First and foremost, the main feature that is visible is the bearish rising wedge. This wedge that starts at the 0.78 level (bottom of August 2007) is approaching its culmination point or a bullish breakout that is rarely seen before. Such wedges are very reliable patterns and because we deal here with a weekly chart, the reliability is even more increased.
   
   
2. The overshoot of the price at the upper wedge boundary (blue 1) is not an unusual feature after such a run by the price action. The continuation of this overshoot is the critical point. A re-entry inside the wedge will confirm its validity and by doing so confirm the bearish scenario. A consolidation over it will cause a tremendous panic and stop-losses triggering run.
   
   
3. The 40 week moving average, that was a good supporting line for the price (blue zeroes), is now very far from the price and should attract it to return to some "reasonable" behavior.

In the RSI and MACD Histogram windows:

• Look how the RSI is now in overbought territory (violet ellipses). From these levels, the pair always corrected violently and it is not reasonable to assume another reaction this time. A new leg up (by a continuation of the overshoot) would have to start from such overbought RSI values and this is difficult to believe.
  
• The MACD histogram is showing a bearish divergence from October 2007 up to now (blue line). Such long term divergences are very reliable and cause the price to revert to what the indicator is hinting.

Conclusion:

A very big opportunity is presenting itself in the AUDUSD. A very long and determined bull market has taken the shape of a bearish rising wedge. Besides this general pattern formation, we now have an overbought situation and a bearish divergence that hints to the possible incoming reversal.

Disclaimer

By no means do any part of this article recommends, advocates or urges the buying, selling or holding of any financial instrument whatsoever. Trading and Investing involves high levels of risk. The author and his company express personal opinions and will not assume any responsibility whatsoever for the actions of the reader. The author may or may not have positions in Financial Instruments discussed in this article. Future results can be dramatically different from the opinions expressed herein. Past performance does not guarantee future results. The content of this article was created with the best known data at the time. The writer and his company are not responsible for the accuracy or completeness of the mentioned data. The writer is not a registered consultant of any kind and so the reader should not see any single part or the whole analysis as an advice for any kind of action in the financial markets.
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About the Author

Moshe Shalom Head of Technical Analysis Department ForexManage Ltd Site: www.forexmanage.com Email: This email address is being protected from spam bots, you need Javascript enabled to view it