AUD/JPY is trading at fresh highs on the year, signaling bullish continuation after a consolidation that lasted from April throughout most of August, until the end of last week. When we look at the daily chart, we can see that the AUD/JPY was bullish since the 88.23 low on the year in early February. Then, it rallied to 96.50 by early April, and price started to hold below this resistance. We had a dip to 93.04, and price pretty much consolidated around the 95.00 handle, which was the central pivot. For the most part, price stayed above 95.00, so there was some bullish bias within the consolidation. Price also stayed above the 200-day SMA, and the daily RSI never tagged 30. All these were signs that the AUD/JPY was consolidating, but also ready for another bullish continuation push.
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It finally came after price tested 94.00 in August then took off, breaking the 96.50 high. After this breakout, we might start seeing traders buy on a dip. So far, we can see such dynamic in the 4H chart where price dipped to 96.50, testing August’s rising trendline and found buyers, now rallying back toward the 97.12 high.
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Assessing a Buy on the Dip Strategy:
The 4H chart shows the key support levels if price does a double top and falls below 96.50.
S1:96, S2: 95.50, and S3: 95
They just happen to be 50 pips apart from each other. We can see that at 96.00, there was a previous support/resistance area. Then at 95.50, we have the 200- and 100-period SMAs, and if the 4H chart is to remain bullish price should hold above them. Then, we see a support pivot around 95.00. A break below 95.00 would make the bullish continuation outlook less likely, though it might not completely invalidate it. A break below 94.00 might be needed to bring about some bearish outlook.
So, if entry is around 96, and stop below 95 ie. 94.70,. there is a 130-pip risk.
If target is 98.00, we have about a 200-pips reward, which makes a trade from 96.00 just below the 2:1 reward to risk. It’s decent given that AUD/JPY has a bullish mode in 2014 and just broke above a consolidation resistance.
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