The January 3rd flash crash caused AUDUSD to lose 250 pips in a matter of seconds.
However, the resiliency from buyers no doubt surprised many who were watching.
By the New York close at 5 pm EST, AUDUSD had gained 20 pips on the day.
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The recovery carved a massive 290 pip bullish pin bar.
That’s the question that needs answering. After all, a pin bar by itself doesn’t mean much even one that spans nearly 300 pips.
There needs to be a key support or resistance level in the equation.
A view of the downtrend that began in January of last year illustrates why AUDUSD was determined to close in positive territory after the flash crash.
Notice how the January 3rd pin bar bounced from new support near 0.7000. That was an old trend line resistance that extends from the January 26, 2018 high.
So the pin bar in question wasn’t a fluke.
There’s a solid technical explanation as to why AUDUSD bounced the way it did last month.
But since that time, buyers have struggled to gain traction.
In fact, AUDUSD has yet to breach the swing high that followed the bullish breakout last November.
That doesn’t mean the Australian dollar won’t eventually move higher though.
The January 3rd pin bar is still very much intact as is key support just below the 0.7000 handle.
As long as that’s the case, I have to respect the potential for a bullish scenario here.
On the flip side, I could argue that the 2018 downtrend is still a headwind.
Sure, AUDUSD broke trend line resistance last November, but we’ve yet to see a series of higher highs and higher lows materialize.
The key takeaway is this:
Be careful trying to short AUDUSD.
To take it one step further, I dislike the idea of shorting AUDUSD altogether.
The pair remains under pressure for now, but I don’t think enough traders are respecting the significance of last month’s 290 pip bounce from new trend line support.
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