It’s no secret that an increase in volatility can cause false breaks. For that reason, I’m always cautious about trading breakouts that occur around high-impact events such as the recent U.S. election.
Leading up to the event, the AUDUSD closed Monday’s session above trend line resistance for the second time in three weeks. On Tuesday, buyers furthered the efforts by closing the pair above recent highs at 0.7730.
However, those gains were erased and then some in the aftermath of the election. By the end of Wednesday’s session, sellers had closed the risk-sensitive pair back below the trend line that extends from the April high.
This series of false breaks is a perfect example of why I don’t trade against the grain unless of course, we have a confirmed reversal pattern. But in the case of the AUDUSD, the pair has been stuck in a downward spiral since 2011, and I’ve yet to see any reason to question the trend.
All of this boils down to the fact that I’m only interested in selling opportunities.
With that said, the only development that would pique my interest is a daily close below long-standing trend line support. I’ve mentioned the level in the chart below several times in recent months, and with five retests since its inception, it’s become one of the more prominent technical levels of 2016.
From experience, I can say that volatility tends to pick up at turning points. And if the last few weeks of price action are any indication, the AUDUSD is getting close to turning.
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