300-PIP AUSSIE BREAKOUT MAY HAVE TO WAIT

August 11, 2014

This pair has recently attempted to start a breakout from a Range on the Daily Chart, with a break of a Counter Trend Line (CTL) setup below the Support. This is a common way for Consolidation breakouts to begin following a test of the Range with this CTL barrier. However, the bearish break candle was not strong enough and would need to be followed by another bear candle to convincingly start the downtrend. Nevertheless, with a break of the Uptrend Line already taking place and a False Breakout of a previous Consolidation, it is only a matter of time before the USD begins to regain lost ground against its Aussie counterpart.

We can see the CTL setup that was broken in the graph below. CTLs tend to appear at the Resistance or Support of a broken Consolidation as a way of testing these areas before the breakout begins.

DAILY CHART

Despite being a strong candle on its own, the break below the CTL was not far enough to start the breakout. The distance below the CTL normally has to be greater such as in the example below for the CAD CHF this year.

DAILY CHART- CAD CHF

Whenever the breakout is not strong enough, one of two things can take place. There could either be a False Breakout that takes us back inside of the Range or another, stronger bear candle that continues the breakout short. What could tip the balance in favour of a bearish move, however, are three technical factors;

The Break below the Uptrend Line;
The Plateauing, Sideways Movement of the Currency Pair;
A Previous False Consolidation Breakout;

It is very common for trend changes to follow False Consolidation Breakouts and periods of sideways movements. There was a Pennant setup on the left-hand-side of the chart that attempted to break long to continue the uptrend, but this was short-lived, giving way to the Range setup that we now see. These two Consolidations side by side then created a type of plateau which normally means that the momentum of the trend has been exhausted. If we add a break of a Trend Line into the mix, then a trend change is the inevitable outcome.

DAILY CHART

Once this bearish trend gets going, the target that is expected to be hit in the short-term is the 0,9000 area. This coincides with the Breakout Equivalent of the Range and is the price point at which the breakouts from Consolidations come to an end.

DAILY CHART