Trade Idea: AUD/USD - Sell at 0.7890

Trade Idea: AUD/USD - Sell at 0.7890

Recent wave: Wave iii of c ended at 0.7723

Trend: Near term down

Original strategy : Sell at 0.7955, Target: 0.7800, Stop-loss: 0.8010

Our trading strategy : Sell at 0.7890, Target: 0.7755, Stop-loss: 0.7940

The Australian dollar fell after brief recovery and tumbled to 0.7723 yesterday in New York session before rebounding partly due to the verbal wanting from Japan’s official. At the moment, we are keeping our view that wave c of the second a-b-c of wav iv correction from 0.8265 is still in progress and only wave iii has ended at 0.7723, hence the rebound from there is treated as wave iv of c and should be limited to 0.7892 resistance (yesterday’s high) and bring the final wave v of c for retest of 0.7723, then towards 0.7694 (38.2% Fibonacci retracement of wave iii from 0.6771).

To recap our latest preferred count, the prolonged wave iv from 0.8265 is still unfolding in the form of a double three and the fall to 0.7777 is treated as the first set of a-b-c, followed by wave x at 0.8156 and second set of a-b-c is in progress with 5-waver a-leg ended and 3-legged wave b ended at 0.7879 and 0.8039 respectively.

If price rises above 0.7918 (61.8% Fibonacci retracement of 0.803 to 0.7723) would dampen this bearish count and risk 0.7990/00 but only break of resistance at 0.803 would suggest the entire correction has ended at 0.7723.

On the bigger picture, as the prolonged wave iv is still a correction, our bullish view remains for an eventual upside break to take place later to confirm the wave C rally from 0.6248 (2 Feb 2009) has resumed to 0.8292 (1.618 times Fibonacci projection of 0.6007-0.7270 measured from 0.6248) and possibly towards 0.8383 (50% Fibonacci retracement of 0.9851-0.6007) to end the larger degree wave (B).

To re-cap the current bullish count on aussie, the rally from 0.6007 to 0.7270 (7 Jan 2009) is tentatively marked as wave A, the retreat to 0.6248 (2 Feb 2009) is seen as wave B and the subsequent upmove is labeled as wave C and formed a temporary top today at 0.8265 (minor wave iii), above would extend to 0.8292 and possibly towards 0.8383.