AUD/USD Under Pressure Below Downtrend Line

AUD/USD (daily chart as of December 11, 2013) did not find much support around the 0.9115 level, and traded lower to 0.8990 on November 6. Price then pulled back above 0.9115 yesterday, but today retreated to below that level once again under the pressure of the daily EMA 20 (bold green moving average on daily chart), and also under the pressure of the medium-term downtrend line that connected the October 23 high and the November 20 high (bold red trend line on daily chart).

Price action has been zigzagging against 0.9115 for more than two weeks (red rectangle shape on daily chart). It appears that the currency pair is making a short-term inverse head and shoulders pattern on the 4-hour chart, with the bold blue line as a possible neckline around the 0.9170 level. If price falls below 0.8990 (the “H” on chart), it would invalidate the pattern. Price needs to clear the neckline and breakout above both the daily EMA 20 and the medium-term downtrend line to confirm the short-term reversal pattern.

Support levels below:

1st support: 0.8990 (November 6 low)

2nd support: 0.8890/50 (August 28 low/August 5 low)

3rd support: 0.8770 (August 22, 2010 low)

Resistance levels above:

1st resistance: daily EMA 20 or medium-term downtrend line

2nd resistance: 0.9270/0.9315 (support/resistance zone)

3rd resistance: 0.9450 (November 20 high)