The Australian Dollar has taken an absolute beating last week, experiencing a 320 pip price breakdown. The aggressive selling of the AUD has pushed the AUDUSD major chart into ‘extreme’ prices from it’s mean value. Generally you can expect the charts to snap back from these extreme prices, the market doesn’t move in straight lines as we know.
We’re starting to see evidence of what we call a ‘mean reversion’, where the market corrects from aggressive price moves. The plan of attack here is to wait for price to test the next bearish ‘hot spot’, which is the old weekly support level. Here price action traders can wait for bearish price action signals to develop as an early sign of the downtrend continuation.
Conversely, if the market breaks back above that weekly support, we could start looking for long signals. But before we get ahead of ourselves, lets see how price reacts to the bearish hot spot.