AUD/USD Signals a Bearish Outlook with a Break Below 0.92

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AUD/USD Signals a Bearish Outlook with a Break Below 0.92

The Shift in AUD/USD in 2014

AUD/USD was bullish in Q1 of 2014, rallying from a January and 2014-low of 0.8660 to 0.9461 in early-mid April. Price has since traded more or less sideways, with support at 0.92, but with a bullish attempt that made a new high at 0.9505 at the end of June. In July, price started to slide. We can say that this is the first sign of exhaustion – price unable to extend higher after making a new high. However, while exhaustion might signal some consolidation, it does not necessarily signal a bearish outlook.

AUD/USD Daily Chart 9/9
audusd daily chart 9/9

(click to enlarge)

Price Top

When we look at price action from June through July, we see a rounded top, or even a head and shoulders. That will serve as a fractal to the larger pattern between April and now.

Let’s turn our attention to the current price action – a break below 0.92. This officially completes a price top, whether you call it a head and shoulders or rounded top, which signals a bearish outlook. Also, the RSI is falling below 40, which shows loss of bullish momentum.

Now there might be just one last challenge for AUD/USD-bears, or last line of defense for the AUD/USD-bulls. The 0.9180-0.9190 area contains the 200-day simple moving average (SMA), and the 38.2% retracement level. So, a break below 0.9180 should add confidence for the bearish outlook.

The first target for the bearish outlook would be the 0.9080-0.91 area, which contains the 50% retracement level, and a previous resistance pivot (made in February) that can be tested as support.

More Evidence for the Bearish Outlook:

The weekly chart also adds weight to the bearish outlook, and gives the confidence of further downside risk towards the 2014-low at 0.8660. You can see price falling back below the 50-week SMA. The weekly RSI is also held below 60 again, which shows maintenance of the long-term bearish momentum, established by the 2013- decline from about 1.0580 to about 0.8847.

AUD/USD Weekly Chart
audusd weekly chart

(click to enlarge)

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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.