The 4H EUR/AUD chart shows a market that has been consolidating since falling to 1.4359, which stands as the 2014-low so far. Now, more than a month later, it looks ready for bearish continuation as traders break below the consolidation pattern.
(click to enlarge)
Here are some signs in the 4H chart for bearish continuation.
1) There is a rounded top, which reflects a market that has cleared EUR/AUD-bulls during the consolidation.
2) The moving averages are sloping down, and price is trading below the moving averages. If price is indeed in bearish continuation, the moving averages should start to spread out, and the 200-period should be above the 100-period, which should be above the 50-period SMA in the 4H chart.
3) The RSI has fallen below 40, which shows lost of bullish momentum. In fact, the RSI never pushed above 70, so any bullish momentum was weak anyway.
4) The key price action is the breakdown of June-July’s rising trendline support. This signals a break from consolidation, and readiness for a bearish continuation.
As we start the week, we are seeing some pullback. This can offer an opportunity to confirm the bearish breakout. If price comes back tow 1.4460 area, it will be testing the previously broken support as resistance. Watch out for sellers here especially if the RSI is near 60.
Failure of Resistance:
The bearish outlook would probably have to be shelved if price pushes above 1.45, which would clear July’s falling trendline as well as the 200-, 100-, and 50-period moving averages in the 4H chart. In this scenario, we should look for further correction, another round of price action like the ones we had in June-July.
Bearish Continuation Scenario:
Let’s say resistance holds after this week’s pullback. The 4H RSI holds below 60, and price starts fall again.
(click to enlarge)
In this scenario, the first target should be the 1.4360 low on the year. Right below that there is a support pivot at 1.4318, but the downside risk extends toward the 1.4050 support during November 2013, from which price had jumped to the 2014-high at 1.5831. We should start looking for support above that, around the 1.4120 area.
Notice also that the bearish confirmation in the 4H chart will also provide a bearish confirmation in the daily chart. It would confirm respect of the 50-day SMA as resistance and thus keeps the downtrend since February intact.
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