The AUDUSD pair has formed a bullish Butterfly pattern on the 240 minute timeframe that has completing near a key a support level on the daily chart. Let’s take a closer look at the pattern by referring to the chart below.
As you can see the Butterfly pattern is outlined and consists of 4 main legs – the XA leg, AB leg, BC leg and the CD leg. The XA leg is the starting move which Is retraced by the AB leg. The AB leg should retrace the initial XA move by 78% approximately. This ideal B point was popularized by Scott Carney. This retracement in the AUDUSD pair is quite close to that ideal retracement. Then we would expect a price move during the BC leg that is in the same direction as the XA leg. Finally, the last leg, the CD leg should terminate at either the 127% or 161% Fibonacci extension of the initial XA leg. The AUDUSD pair comes in this case has bounced of the 161% Fib level.
Once this pattern completes, we would expect prices to move higher. Although the Butterfly pattern is a high probability setup in itself, we have two additional conditions that exist that point to higher prices, which is worth noting. This first is the clear presence of a 5 wave impulse sequence with the CD leg. After every impulse sequence ends, we can expect a corrective move to occur. Secondly, take note of the blue line which represents a major support zone on the daily chart. Prices have bounced off that level recently and it appears this level is holding as buying demand is entering the market.
As for a likely take profit target, point C of the Butterfly pattern would be an ideal place to exit, however, it would be wise to trail the long position in case price fails to reach that level.
The forecasts contained here and on our website with regards to the direction of any currency pair or finanical instrument is based on assumptions that may or may not be realized. Past performance is not a reliable indication of future performance. Trading FX, CFDs, Futures, and other derivatives carries a high risk of financial loss. You may lose the entire amount invested, and in some cases your loss can exceed your account balance. We are not investment advisors, and you should seek professional investment advice before making ay investment decisions.