The sterling has been rapidly losing ground against the Aussie in recent months. Last week was a surprisingly choppy week for the pair with little happening; however, price action came alive later with the market closing out the week with a bearish Hikkake pattern.
Wednesday and Thursday were both inside bars, with Friday completing the bearish Hikkake pattern. The Inside bars were ‘coiled’ (the outside bar, followed by an inside bar, followed by another inside bar which is inside the previous inside bar), further strengthening their bias.
In the chart above we can see the Hikkake pattern. Although we’d have liked to have seen Fridays bar closing as a bearish pin bar, the fact it has falsely broken the highs and then retracing back within the outside bars range is a strong bearish signal.
The pattern is further strengthened as it formed rejecting a strong area of support/resistance as seen below. The area at 1.4800 supported the market back in the summer of 2011. January this year saw the pair falling back towards this area which did not hold as support this time round. The market broke though and has now retested it suggesting we could see a bounce back lower.
We’ll be looking to short the pair in the coming week at or around current levels (Friday close). Stops could be placed just above Fridays highs with targets initially being at last weeks lows, resulting in a good R:R trade