AUD/USD – Double Bottom vs. Falling Trendline

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AUD/USD - Double Bottom vs. Falling Trendline

The 1H AUD/USD cart shows a pair that ended last week with a double bottom attempt, which followed a week of decline from about 0.9474 to 0.9275. We’ll see that this dip was significant in terms of technical development, but for now let’s look at the near-term structure.

AUD/USD 1H Chart
audusd 1h chart 8/4

(click to enlarge)

Double Bottom:
The double bottom looks like it is getting confirmation as price held above 0.93 to end last week, and to start this one. The way price hooked above the 5-hour SMA is also part of the first step in attempting at least a near-term bullish correction. The RSI is also pushing above 60 which reflects loss of the bearish momentum in this 1H chart’s near-term time-frame.

Falling Trendline, Fibonacci Retracement:
The double bottom sets up a bullish attempt that is now being challenged by a falling trendline. A break above 0.9340 should clear above last Friday’s high and above the falling trendline. This would signal a bullish continuation, or at least a correction toward 0.94 and the 61.8% retracement level, which is a few pips away.

In the near-term, it looks like there is a possibility of a bullish breakout. What would this breakout be in terms of the bigger picture? Let’s take a look at the daily chart to see where we are in terms of the long-term, price action since the past year.

AUD/USD Daily Chart 8/4
audusd 8/4 daily chart

(click to enlarge)

The daily chart shows a market that was bearish in 2013, but looks like it has turned bullish in 2014. However, last week’s dip break below a key support at 0.9322. This is the first breakdown of a key support on its way up in the 2014-bull-run.

However, the bullish signs are still there:
1) Moving averages are in bullish alignment.
2) Since tagging 70 in April, the RSI has held above 40 except for a brief violation in May. This reflects maintenance of the bullish momentum.

So, we are dealing with a market that is mostly bullish in 2014, with some early signs that the market is turning sideways-bearish. In the near-term, price action looks bullish, and has the 0.9340 level to break to open up the 0.94-0.9410 area. If price pushes above 0.94, there is more bullish signs than the 1 bearish one we had from last week’s dip. Therefore, we should probably have more bullish bias than a bearish one based on the technical pictures from the daily chart down to the 1H chart, especially if price is able to push above 0.9340 and break the very short-term falling trendline.

However if price does not break above 0.9340, or retreats sharply after breaking it briefly, there is downside risk to the next key support around 0.92.

To contact the reporter of this story, email Fan Yang at fan@forexminute.com
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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.