Following its largest one week gain since February of last year, the AUDUSD is picking up right where it left off on Friday. The pair is a few pips away from taking out last week’s high and is once again pressing the 0.7830 resistance level.
The significance of the 0.7830 handle is two-fold. First, it’s the 2016 high which also marks a major range top. Second, it’s the 23.6% Fibonacci level when measuring from the multi-year high in 2011 to the low in 2016.
With the 0.7830 resistance level just above current prices combined with the over-extension makes buying up here a risky endeavor. At the same time, I don’t want to sell due to the recent bullish momentum and new fifteen-month highs.
By over-extension, I’m referring to the 150 pips that separate the current price from the 10 and 20 EMAs. As you may well know, I don’t like buying or selling when there’s this much distance between the price and the mean.
However, if we were to get a rotation into the 0.7740 handle, I may entertain a long entry. Such a pullback would revisit the highs from February and March (new support) and would also help to “reset” the current rally by way of mean reversion.
On the flip side, a daily close above 0.7830 would pave the way for a retest of the 0.7935 handle. The area served as resistance between 2004 and 2006.
Regardless of which scenario plays out, I’ll need to see the 10 and 20 EMAs catch up to current prices before considering a position. Without a pullback or at least some consolidation, I’d be chasing a runaway market which is never a good idea.
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