We had initially entered AUDUSD long following a Morning Star formation above trend line support two weeks ago near 0.9030. This trend line had been established in August of last year. The pair rallied to reach a high of 0.9252 that week (222 pips), but failed to rally as high as our target below 0.9360. Last week, we moved up our stop to the break-even, taking risk off the table and looking for upside momentum to continue following a retracement. The pull-back proved deeper than we expected, with the lowest tick on 04/01 right at 0.9030.
Whether the break-even stop was triggered on the tick to 0.9030 depends on the level of initial entry. Most importantly, the trend line that we based our analysis around was not violated, as the candle did not close below. Since 04/01, AUDUSD rallied back above the 0.9200 level. We saw a Bullish Engulfing pattern on the 04/02 close that has now been confirmed and is showing a Three White Soldiers formation.
Those traders that were not stopped out last week may hold the position for further upside. We were stopped out at break-even, and will now look to re-enter long aiming for the 0.9500 top. Though we will opt to set our stop-loss inside the trend line for favorable risk-reward, we will monitor closely for a repeat of last week’s events. Should a stray wick take out the stop-loss but fail to close below the trend line, we will look for confirmation on the next candle and then re-establish the long trade.
AUD/USD Strategy
1. Long AUDUSD above 0.9200.
2. Set stop at 0.9080, below recent lows.
3. Set profit target just below 0.9470 near the top preceding the most recent major retracement.
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