This week let's look at the AUD/USD. I has had quite a successfully run since march 2006 and has recently found strong resistance around the 0.9500 area. It seems as if there is a glass ceiling on this pair that won't allow the AUD to appreciate all the way to even par. So how do we trade this.

It's entirely possible that we are witnessing another ending diagonal forming, like we saw recently on the EUR/USD however this time it appears that the entire move since August 07 is a giant wedge. The question is; is it complete or do we need one more thrust upward? The shape is a little unorthodox however the rules and guidelines are all in place. Let's review what we know about Ending Diagonals and what usually happens immediately following them.

We saw the sudden and direct reversal on the EUR/USD once the pattern was complete. This is in fact one of the most important characteristics. So if the AUS/USD has topped, have we seen a strong reversal? I would say no, not yet. The most recent move down was choppy and complex. In Elliott Wave terms this suggest a corrective wave and that if this assessment is correct will be followed by a final thrust upward to herald the top of the overall pattern.

So I would look for a reasonably strong move upward followed by a small break of the upper trend-line and then a sudden and fast reversal that should confirm the top. This comes about because of the inexperience of the smaller traders that drive the price upward to make a final new high where the big players are all waiting to sell, believing a price point over the current top (0.9500) will not hold. So the sellers get very aggressive the second they see the high re-visited.

Buying here at might be a good swing trade, targeting just shy of 0.9500. But be wary, because if the assessment is correct this will come down without touching the sides.

Cheers and good trading,

Pierre