The AUD/USD has been consolidating since reaching 0.9504 high of the year.After a sharp retreat, price held above the 0.9321 level and continued to consolidate sideways. This consolidation structure is turning up the bearish bias in July. It looks like traders are rounding out a price top.
Looking at the 4H chart, here are some observations and outlooks:
1) There is a common resistance around 0.9440. It was the ascending triangle resistance on the left side of the “rounded top”. The rejection showed bears are in charge.
2) After falling from 0.9440, price action has been generally bearish, with lower highs and lower lows.
3) Price this week has fallen below the 200-, 100-, and 50- simple moving averages.
4) The RSI has tagged 30 in July, but has not returned to 70. This shows slight bearish bias.
5) If price can hold south of 0.94, the pressure is going to be on the 0.9320 neckline of the rounded top.
6) If price can break below 0.9320, the lows and support area in April through May in the 0.92-0.9210 area will be exposed.
7) If price however pushes above 0.94, the bearish bias developed this week will be gone.
8) Above 0.94, we should consider the bullish continuation scenario because when you look at the daily chart, you can see that the bullish trend in 2014, might be slowing down, but has not reversed.
9) The break below 0.9320 could be the first major bearish signal for the short-term, and should shift the bullish outlook to a neutral one.
10) Only a break below 0.92 should open up a bearish outlook outside of the short-term.
AUD/USD Daily Chart 7/18
(click to enlarge)
Traders should consider shorting only after there is a break below 0.9320, then the target could open up to 0.9210. After a break below 0.9320, considering shorting a pull back to 0.9250.
Reward to Risk:
After a breakout and a pullback, we should expect the market to hold below 0.94 if indeed it is turning bearish toward 0.92. Let’s look at the reward to risk for an entry planned at 0.9350. A stop at 0.9415 for example offers a risk at stop-loss of 65 pips. On the reward side, a target of 0.9210 offers a potential reward of 140 pips.
The trade set up described above offers a reward to risk ratio of 2.15 : 1.
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