A countertrend setup is forming on AUDUSD’s 1-hour time frame, as the corrective forex wave is about to take place on a bounce off .8300. The pair has been moving in a downtrend channel since the middle of November and may stay in this falling range for the time being.
Price just came off a test of the channel resistance around the .8500 major psychological level and has resumed the impulse forex wave lower. Stochastic is moving out of the oversold area, suggesting that buyers could take control of price action and trigger a forex wave back up to .8500.
Forex Wave Trend
Taking a countertrend setup and catching the corrective forex wave might prove to be more risky compared to joining the overall trend. This could warrant a smaller position size and a tighter stop, in case the downtrend remains intact and triggers a sharp breakdown below the channel support at .8300.
Take note that the 100 SMA is still moving below the 200 SMA, indicating that the downtrend is likely to carry on. In addition, the 100 SMA has held as a dynamic resistance zone in the recent pullbacks so far, as it also lines up with the channel resistance.
Event risks for this forex wave setup include the release of the ADP non-farm employment change, which might indicate a weaker gain in hiring and lead to downbeat expectations for the NFP release on Friday. Disappointing data could lead to a dollar selloff and a bounce back to the top of the falling trend channel.
On the other hand, strong jobs data might lead to a move below channel support, as this would lead to pricing in of strong NFP figures and a more upbeat Fed bias. After all, the US central bank appears to be on track to hike interest rates sometime next year unless data disappoints.
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