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Talking Points:

• AUD/USD profit target of 0.8700 was hit

• Another sell entry possible in the near future

• SSI maintains elevated levels, a bearish signal

The Australian Dollar has continued its massive decline against the US Dollar the past couple of weeks. SSI traders that have followed sentiment’s recommendation to sell have been in great shape. But even if you haven’t participated in this AUD/USD trade, there still may be an opportunity on the horizon. Let’s take a look at the current situation with the Aussie.

AUD/USD Profit Target Hit, Then Price Reverses

Two Fridays ago, we referenced the closest level of major support for the AUD/USD was at 0.8700. This not only was a psychological level, but lined up with a previous swing low from early 2014. It was at this level that we suggested setting a profit target (roughly +250 pips at the time). Monday’s low of 0.8683 enabled us to take profit on our trade.

Learn Forex: AUD/USD Hits Profit Target of 0.8700

(Created using Marketscope 2.0 charts)

However, the Aussie did not waste any time rebounding from its low back up to around 0.8750. This puts traders in an interesting situation. It’s possible we could have another selling opportunity on the horizon.

Two Different Types of Sell Entries Possible

There are two scenarios that could play out in the future that could create another selling opportunity on this pair.

The first is that the AUD/USD could continue to move lower, breaking its previous low. A Daily close below 0.8700 would be considered a breakout to the downside and give traders the opportunity to sell. With this position, a stop loss could be placed above 0.8700 by several pips and a limit set twice as far as our stop. This would give us a 1:2 risk:reward ratio.

The second scenario could be the AUD/USD continuing to rally higher like it did today and retrace back to a Fibonacci level. The chart below shows where the 38%, 50%, and 62% retracement levels are. Any of these levels could stop the AUD/USD retracement and force the Aussie to move lower. This means that we have the option to sell at any of these 3 levels. There is no way of knowing which level will cause price to bounce (if any at all), but a stop loss can be set a few pips above 0.9125 regardless of the level we choose to enter. The higher we allow price to move, the less risk our short position is exposed to, but we are less likely to actually get an entry if we wait too long.

To understand more about Fibonacci Retracement, watch this free video tutorial.

Learn Forex: AUD/USD Potential Sell Entries