AUD/USD Retreats from the Daily EMA 50

AUD/USD (daily chart as of August 20, 2013) reached a high of 0.9230 with a bearish candlestick on August 19, about 20 pips under the daily EMA 50, and price turned down once again to test the daily EMA 20. The testing of the EMA 20 has been choppy from July 16 to July 29 (pink rectangle shape on the chart) and from August 8 to August 20 (silver rectangle shape). The EMA 20 has been acting as strong resistance for more than four months, and the pair needs to break above it to challenge the upper boundary of the broadening pattern, or more specifically, the descending broadening wedge pattern (between the two bold trend lines).

Normally, a descending broadening wedge pattern tends to have an upward breakout, but theoretically the pattern should be expected after a bull market, which might not be the case here as we have an apparent downtrend since mid-April. Another assumption is that the pair may be making a large inverse head and shoulders pattern, if we consider the “hammer” on August 5 as the “head” (H), the low of July 12 as the “left shoulder” (LS), and the “right shoulder” (RS) is still in process. The potential head and shoulders pattern is only valid with price holding above 0.8845 (the “head”). Note that the daily MACD had a bullish crossover below zero with a rising signal line and slowing MACD line, and the daily RSI is testing the line 2 support from just above 50 (last arrow on the chart).