AUD/USD (daily chart as of December 20, 2013) respected the resistance of the daily EMA 20 (bold green moving average line on chart) and invalidated a possible short-term inverse head and shoulders pattern by trading lower to a fresh low of 0.8820 on December 18. However, the currency pair managed to close above the key support level around 0.8845, which was the August 5 low.
The candlestick on December 18 was a high-wave candlestick variation, which had a relatively small real body with long upper and lower shadows. An ideal high-wave candlestick will have a very small real body with very long upper and lower shadows that exceed the length of its real body. High-wave candlesticks indicate indecision. Another high-wave candlestick followed on December 19.
Note also that the candlesticks of December 18 and 19 together formed a potential bullish Harami pattern (green rectangle shape on chart), with the real body of the first bearish candlestick engulfing the entire body of the second candlestick. This setup was pretty much the same as the one we had on August 2 and 5 (blue rectangle shape), which also involved two high-wave candlesticks, where price bottomed out around 0.8845. Today, we have a bullish candlestick poised to recover the loss of December 18, and we need a strong close to confirm the pattern.
Current price is still under pressure below a revised medium-term downtrend line (bold red trend line on chart) connecting the October 23 high and the December 10 high (two red arrows). As shown, the daily EMA 20 is coincidentally overlapped with the medium-term downtrend line, making a stronger resistance area above. If price can clear that strong resistance confluence, a potential rebound might be expected ahead.
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