By: DailyForex.com
In my analysis last week of AUD/USD on Wednesday 17th July, I declined to make concrete predictions due to the uncertain technical behaviour of this pair. I did mention a weak possibility that we were likely to see 0.9304 before 0.8997, and that did in fact happen.
Let's take a look at what has happened over the past week:
The price found support at the 0.9150 level and has been trending up ever since, as shown by the slightly ill-defined trend line supporting it. Late on Monday it broke through the upper trend line of the bearish channel drawn from the daily and weekly charts – a bullishly significant event. There were also initial signs that what was resistance at 0.9250 is turning into support. However, things have been happening quite slowly. Sometimes major turns in trend do take a while.
Let's zoom out and look at it from the top down:
The weekly chart paints a more bearish picture. We can see lots of resistance levels close by overhead that the price has had difficulty breaking, and that the upper trend line of the bearish channel, as well as the resistance at 0.9250, may in fact be holding. Last week was a bullish inside bar, and the highs of both it and the bar before it have already been broken this week, but the break was weak. Inside bars are too often assumed to prefigure a breakout, what they are more likely to show especially where they have any kind of significant wick, is consolidation.
The daily chart also provides extreme caution for the bulls:
We can see that there was little decisive price action recently on the daily chart, all we have to go on is a weak bullishness evinced at the bullish breaks of inside bars at 1 and 2. However what is happening as the daily bar forms today looks likely to be a very significant development: a bearish reversal from a rejection of the upper trend line of a bearish channel and a major resistance zone! This would suggest a resumption of the downwards trend. Note also that the RSI(14) indicator has failed to decisively break the 50 level, another sign of the weakness of any bullishness.
In trying to see what will happen next, how today's daily bar forms will be crucial. The more of the following levels it closes below at midnight GMT tonight, the more bearish the outlook:
1. Yesterday's open at 0.9256.
2. The upper trend line of the bearish channel and the resistance/support level at 0.9248.
3. The weekly open at 0.9175.
If 1 and 2 happen, it should be safe to turn bearish and look for short trades, targeting all the way down to 0.9034.
However if the price turns around later today and the day closes above 0.9256, we can turn bullish, but be cautious of the resistance levels above 0.9300 in any long trades.
If a break of 0.9350 is achieved with momentum, we could say the trend has turned decisively bullish, and it should attract a lot of buying interest.
It seems that everything hinges on today's action.