The AUD/NZD has been in a slightly rising channel throughout 2014 so far. As you can see in the daily chart, price is now testing the channel support.
(click chart to enlarge)
Just because AUD/NZD has been trading in a rising channel, it does not mean AUD/NZD is in a bullish trend. You can say it was slightly bullish in 2014, but when you consider the prevailing trend that is sharply bearish, you will assess 2014 as a sideways market, or consolidation period.
Looking at the daily chart, here are some technical clues that the AUD/NZD market is actually bearish, and should break the channel support:
1) The moving averages (200-, 100-, 50-) all have negative slope.
2) Price is trading below the moving averages.
3) When you look at the inner structure of the “rising channel” you cna arge that the market was really in an ascending triangle with resistance around 1.0915, which you can trace back as resistance back to Dec. 2013.
4) In June, we had a bullish breakout. Price briefly cracked the 1.10 psychological level and the 200-day SMA. The RSI also tagged 70 and therefore showed bullish momentum. However, all these bullish signals were overturned when price returned back below 1.0915. This is what’s known as a false breakout, or clear-out price action. The false bullish signal actually strengthens the case for the bearish outlook, especially since the prevailing trend is bearish.
5) As we move to July, the RSI has dipped below 40 and reflect a loss of the bullish momentum established by the false breakout swing.
The bearish breakout is therefore in the cards. In the short-term, over a week or two, there could be some bullish attempt from the “channel support” However, if the AUD/NZD is to remain bearish, the bounce should be limited to 1.08.
(click chart to enlarge)
If there is a bounce from the 1.0625 and channel support. We can use the 4H chart to time a bearish continuation swing.
– A bounce will first see a challenge at 1.0720-1.0730 area. Here is the recent support/resistance pivot zone.
– The 1.0720-30 area could also be reinforced by a falling trendline from June.
– The 50% retracement level is at 1.0828, along with AUD/NZD’s 200-period SMA in the 4H chart. This should provide a key level of defense. A break above 1.0830 is likely to invalidate the bearish outlook.
– Looking at the 4H RSI, if the reading stalls at 60, we should get ready for a bearish continuation swing.
A bearish continuation swing would open up the 2014-low at 1.0491 in sight.
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