AUD/USD Waiting to Uncoil; Bearish Outlook Preferred in the Short-term

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AUD/USD Waiting to Uncoil; Bearish Outlook Preferred in the Short-term

AUD/USD ended June with a bang, popping above an ascending triangle resistance at 0.9440, establishing a new high on the year near 0.95. In July however, price has retreated sharply back in the previous month’s consolidation area. As you can see in the 4H chart, the AUD/USD has been coiling between 0.9320 and 0.95.

AUD/USD 4H Chart 7/14
audusd 7/14 4h chart
(click to enlarge)

Even though the prevailing trend is bullish, when looking at the 4H chart, I prefer the bearish scenario in the short-term, but only slightly. This bearish outlook will be limited to 0.92 as I will explain later.

Here are a couple of reasons why I prefer the bearish outlook in the 4H chart:
1) Last week, we had a bullish attempt that was rejected as it cracked that 0.9440 resistance pivot. Sellers here suggest the 0.95 high is in place, and we are in a period of consolidation already.
2) The RSI has come down to tag 30, and has so far failed to return to 70. Again, this reflects a market in the early stage of trying to establish bearish momentum.

Bearish scenario:
The bearish outlook is held back because price in the 4H chart continues to trade above the 200-period SMA, thus guiding price into a triangle, or coil. A break below 0.9360 can start uncoiling towards the downside.

In this scenario the 0.9320-40 area, will still provide some short-term support, but a break below 0.9320 should be a big clue towards a another bearish correction attempt. The bearish breakout should be accompanied by the RSI returning below 40, which would reflect bearish continuation momentum in the short-term (after tagging 30 and failing to clear above 60).

AUD/USD Daily Chart 7/14
audusd daily chart 7/14
(click to enlarge)

When we look at the daily chart, we see a bullish market in 2014.
– You can see the moving averages moving into bullish alignment, with price trading above them. So you can see that a bearish outlook should be limited.
– If price does fall below 0.9320, AUD/USD will be trading below the 50-day SMA. This can reflect a slowdown to the 2014-uptrend.
– The 0.92-0.9220 area has been key support since April. A bearish outlook should be limited to this area for now.
– The 200-day SMA also resides just beneath 0.92 and reinforces this area as support.

Bullish scenario:
If price holds above 0.9340, and eventually moves above 0.9440, we are likely in bullish continuation, and my bearish outlook should be shelved.

Even if the bearish outlook in the short-term materializes, if price holds above 0.92, we are still bullish on the year. Above the 0.95 high, the next key resistance will be 0.9756, the high from Oct. 2013.

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.