In the 4H AUD/JPY chart, we can see that the market has formed a price top after failing to break above the high on the year at 96.50. Last week, price fell almost to 61.8% retracement of 94.36, and bounced up from 94.40.
As we start a new week, AUD/JPY is trading around 95.20, testing the case for a bearish outlook. Here are some observations and outlooks based on the 4H chart:
1) The momentum has been bearish: In July, the 4H RSI reading has been able to tag 30 and hold below 60, a sign that in this time-frame, AUD/JPY is building bearish momentum
2) Moving averages reflect change of trend: The 200-period is now above the 100-period, which is above the 50-period simple moving averages. Also, price is now trading below all of them, reflecting a change from a bullish mode in May through June to a bearish one in July. The slope of the moving averages are still relatively flat, so we should consider the market neutral – bearish. More confirmation will help shift the mode to bearish.
3) Falling Trendline: Price has been making lower highs and lower lows and is holding below July’s falling trendline and thus remains in a bearish pattern to start the week.
4) Bullish Breakout Scenario: A break above 95.60 could shelve the bearish outlook and revive a neutral-bullish mode with the 96.50 high on the year in sight. In this scenario, price would break above July’s falling trendline and the simple moving averages (200-, 100-, 50-period) in the 4H chart. If the RSI also pushes above 60, it would reflect a loss of July’s bearish momentum, and if it pushes above 70, it adds to the neutral-bullish outlook.
5) Bearish Target: If price does continue to follow July’s trend, the next target could be in the 93.68-93.80 area. Here we have a support pivot from May 28 and the 78.6% retracement level. We should expect a bounce here especially if the RSI tags 30, and especially if there is a bullish divergence.
(click to enlarge)
Looking at the daily chart, there are also some signs that the bullish trend in 2014 could be shifting.
Let’s take a look at some of the technical clues in the daily chart:
1) Double Top: The failure to push above 96.50 gives traders a potential double top to consider, with the “neckline” at 93.04.
2) Loss of Bullish Momentum: The RSI has lost some of the bullish momentum established earlier in the year because it has fallen below 40. The inability of the daily RSI to push above 70 shows failure to re-establish bullish momentum.
3) The moving averages still show some bullish bias: The slope of the moving averages are flattening, but they are still in bullish alignment, with the 200-day SMA at the bottom, and 50-day SMA on top. Plus if price does push above 95.60, it not only pushes above the MAs in the 4H chart as discussed above, but also the moving averages in the daily chart. This should indeed revive a neutral to bullish outlook with pressure toward the 96.50 high.
4) If price breaks below the support zone in 93-93.50, it would clear the moving averages as well as establish a double top. If the RSI is able to push below 30, then a bearish outlook outside of the short-term can emerge with the 90-90.50 area in sight. This 90-90.50 area contains a previous support pivot from March, and could possibly be reinforced by a rising trendline from September 2013’s 86.50 support pivot.
The case for a bearish outlook is being tested as we begin the week. Extension of the bearish bias in July should be the primary anticipation, but be prepared to scrap the bearish outlook if price does push above 95.60.
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