AUD/USD – Bearish Outside Bar at a Falling Trendline

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AUD/USD - Bearish Outside Bar at a Falling Trendline

Bullish Breakout: The AUD/USD pair has been consolidating in February after making a low on the year at 0.7626. It has ranged between that low and roughly the 0.7850 level. Last week, we saw a break above this resistance. Let’s take a look at the 4H and Daily charts to assess this breakout.

AUD/USD 4H Chart 3/2
audusd 4h chart 3/2
(click to enlarge)

False Breakout? The 4H chart shows the sideways consolidation and last week’s bullish breakout. The attempt was challenged at 0.79, which was also where the 200-period simple moving average SMA resided. The subsequent retreat from 0.79 is casting a doubt on whether the bullish breakout can sustain, especially now that price has fallen below 0.78, a rising speedline, and the 100-, and 50-period SMAs.

Bearish Continuation Scenario: If price can extend below 0.7740-50, last week’s bullish breakout would likely have been a failure, which puts pressure back to the 0.7626-0.7650 lows, with risk of continuing the prevailing downtrend.

When we look at the daily chart, we see more evidence that the market likely favors the bearish continuation scenario.

AUD/USD Daily Chart 3/2
audusd daily chart 3/2
(click to enlarge)

Bears in Control: First of all in the daily chart, we should notice the 50-day SMA as well as the falling trendline from September 2014’s high around 0.94. These resistance factors were just above 0.79 and the price action resulted in an outside bearish bar. An outside bar has a higher high and a lower low, slightly different from the Japanese “engulfing pattern” with higher open but lower close. Nonetheless, as the resistance factors challenged February’s consolidation/correction, the bearish outside bar was a bearish continuation signal.

As noted before, this is more evidence that if price can continue below 0.7740-50 area, the 0.7626-0.7650 lows will be in sight. With the prevailing downtrend intact, there would be a very high likelihood that AUD/USD will extend even lower.

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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.