Forex Technical Update
The AUD/USD has been trading downwards in a declining channel since finding resistance at 1.0385 on Jan. 3. The 1H chart shows the market now anchoring out of this declining channel after finding support at 1.0144. So far there is a 38.2% retracement, and the market is still trading under the 200 hour simple moving average. This means, the corrective rally has completed the 1st leg, and a close above 1.0240 will probably be needed before another extension. To the downside if the market closes below 1.0200, the correction could be sideways, held under 38.2%. In this scenario, we can be expecting some more sideways action throughout the week, with continual pressure toward the 1.0144 low. In this case, look for the 1H RSI to be stuck between 40 and 60, with a breakout to the downside as an indication of bearish divergence, and a break above as a sign of a flat correction moving to a sharper one.
If the correction extends above 1.0240 without a break below 1.2, a target using the first leg up as a projection for the second is the 1.0290 level, at the 61.8% retracement. In this scenario, the RSI is likely to move above 60, but when it tags 70, the market is likely overbought and we can look for a return to downside pressure as the market would have completed an ABC correction rally. In fact, there is already a resistance cluster near the 1.0256 (50% retracement) level. Trader's with a bearish outlook might start looking for shorts starting from 1.0260 up to 1.03.
Bullish scenario: If the correction 1) extends past 1.03 or 2) completes and then fails to break back below 1.0240, the bearish outlook should be reconsidered for an even more significant correction either in price or sideways for longer. The daily chart shows that although the market is trading below the 200 day SMA, it has broken above a triangle, and the RSI is pushing above 60, though it did not sustain. The bullish outlook can look to 1.04 above 1.03, with a break above 1.04 opening up the 1.0770 resistance. The most important break to the upside for a bullish outlook is the 1.04 level as it will clear a bearish candlestick combination, push above 200 day SMA, and push the RSI above 60, likely above 70.
Fan Yang CMT is the Chief Technical Strategist FXTimes - provider of Forex News, Analysis, Education, Videos, Charts, and other trading resources