Just 24 hours after commenting on the second false break above resistance, it looks like the AUDUSD is going to break key support. That said, the day isn’t over just yet, and anything can happen in these volatile conditions.
But I don’t care where today’s session closes. I’m more interested in the weekly price action.
You see, since June of 2014 the pair has only carved out three weekly bearish engulfing patterns. This week makes four.
Here’s how the previous three engulfing candles played out:
- June 2014: 2,500 pip drop
- November 2014: 1,800 pip drop
- August 2015: 550 pip drop
And now for the chart:
If you’ll notice, each subsequent formation was less damaging than the previous one. But there’s a good reason for this.
The June 2014 bearish engulfing week was also the high for the year, and it was all downhill from there, quite literally. So it’s logical that sellers would back off as the price moved lower.
Now, here’s where things get interesting…
Of those dates above, this week’s price action is most similar to June of 2014. The reason for this is that the pair had just finished an 800 pip relief rally, so there was an incentive for sellers to get short.
For comparison, this year’s rally that began in January has totaled 1,000 pips. So once again the pair finds itself at a familiar juncture of relatively high prices combined with a historically significant bearish pattern.
Now to be clear, I’m not saying that the AUDUSD is going to fall 2,500 pips. However, the data above tells us that the pair has a habit of falling hard on weekly bearish engulfing patterns, particularly those that form at swing highs.
We’ll know shortly if past performance is indicative of future results.
Want to see how we are trading this setup? Click here to get lifetime access.