AUD/USD Awaits Price Bottom Confirmation

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AUD/USD Awaits Price Bottom Confirmation

The AUD/USD has shifted from a bearish trend into a sideways market and is also building a price bottom that might initiate a bullish one. The daily chart shows the pair find support 3 times at or around 0.7533.

AUD/USD Daily Chart 5/11
audusdmay11dailychart
(click to enlarge)

We can say that a double bottom was formed, with the first bottom established on March 10th, and the second one in April. The one is April was a smaller, fractal double bottom (April 1 and April 12). The market then completed the fractal double bottoms but stalled as it tagged the 0.8033 support/resistance pivot. The RSI broke above 60, which reflects loss of the bearish momentum, but its inability to clear above 70 shows that the current bullish breakout does not have momentum, yet.

Now, price did pullback, and hold above 0.7715. This is a significant bullish signal because it respected the fractal double bottom as support and it is essentially respecting the central pivot of the larger double bottom. Furthermore, price action is starting to treat the 50-day and 100-day SMAs as support after crossing above them. This type of price action is called a “bullish slingshot”.

Central Bank Watch: Now, we can also see in the daily chart that the bounce off of 0.7715 came after the RBA rate cut. A rate cut usually pressures the currency, but this one is expected to be the last one so the forward monetary policy expectation is relatively hawkish for the RBA. Or, traders could be ahead of themselves, because after all, the FOMC is still relatively more hawkish than the RBA. The AUD/USD is caught at the crossroads, unsure whether to confirm the price bottom. The 4H chart shows a triangle from which a breakout might give us some clues on whether the pair will revert back to the bearish trend.

AUD/USD 4H Chart 5/11
audusd 4h chart 5/11
(click to enlarge)

A break above 0.80 will likely clear the triangle. With the 4H momentum still bullish (RSI above 40 after tagging above 70), and with the moving averages in bullish alignment, A break above 0.80 would be a strong bullish continuation signal for at least the short-term. This would confirm a price bottom, and open up the 0.8215-0.83 resistance area shown in the daily chart.

If price falls below 0.78 however, we are likely going to see pressure back towards the 0.7533 low on the year, especially if the 4H RSI falls below 40.

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Fan Yang has been a professional forex trader and analyst since 2007. He specializes in technical analysis and has a Chartered Market Technician designation since 2011. He was the chief technical strategist at CMSFX He was also the founder and chief currency strategist at FXTimes Over the years, Fan has not only been a trader and analyst but also an educator. As a proponent of both technical and fundamental analysis in trading, Fan advocates simplicity and discipline as key factors in making trading decisions when faced with so many "clues" and "signals". Currently Fan Yang is the chief currency analyst and webinar instructor at forexminute.com.