An interesting phase of price action is now developing on the weekly chart for the AUD/USD, and many forex traders are now asking whether the bullish momentum for the Aussie is set to continue in the short term, or is the pair running out of steam. The weekly chart answers this question very simply, and all we need to do is apply volume price analysis!
The bearish trend lower which extended from May through to July, was accompanied with strong and rising volumes as the currency pair fell, particularly in May and early June. One only has to compare these volume bars with those of the first quarter, to instantly see the levels of selling associated with the move lower, which then finally developed into the current buying climax of late June and early July. Here we can see the stopping volume being applied, as the big institutions move in, buying at this level clearly shown with the narrow price spreads and high volume. As always, a buying or selling climax takes time to complete, and after such as major move lower, the ‘mopping up’ operation may extend for several weeks, and indeed from the subsequent price action of September, this certainly seems to be the case.
The floor of support has now been built in the 0.8850 area, as shown with the green dotted line, but the initial response higher has been weak, with the wide spread up candle of early September failing to follow through in subsequent candles. Here we see two narrow spread up candles, both with above average volume, sending a clear signal of weakness. Indeed the candle of this week also seems to be echoing this view, with another narrow spread candle, topped with a deep upper wick.
With the upper level of resistance now also clearly defined, the AUD/USD looks set for a period of sideways consolidation in this region preparing for the trend breakout, with the pair likely to move lower to test the 0.9200 price level in the short term. When the institutions are ready, then the accumulation phase will be complete and the pair will then rise strongly. The other question is then of course, how do we know when the big institutions are ready? The answer here is when we see a test on low volume. As soon as this appears, then the market is primed and ready to breakout. All we have to do is wait for the test, and then prepare to take advantage and buy.
By Anna Coulling
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