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.
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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.
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