AUD/USD Breakout above Medium-Term Downtrend Line

AUD/USD (daily chart as of January 8, 2014) broke out above the medium-term downtrend line (bold red trend line on chart) and booked a fresh daily high of 0.9000 on January 3.

Note that the breakout candlestick on January 3 was a relatively weak bullish candlestick with a longer upper shadow (red arrow on chart) indicating stronger resistance at the session high, which was right around the resistance confluence of the daily EMA 20 and the previous low (December 6) of 0.8990.

Technically, we prefer a very strong bullish candlestick when the breakout occurs, especially for a medium-term time frame breakout.

The currency pair has been testing the daily EMA 20 for four trading sessions since the breakout. Note that the daily EMA 20 has been acting as strong resistance for more than two months since November, and if Aussie cannot keep up the recent upside momentum to break out above the EMA 20, it could face a potential risk of retesting the low of 0.8820.

If price can clear the barrier of both the daily EMA 20 and the previous support (now resistance) level at 0.8990, further upward movement may be expected.

Support levels below:
1st support: 0.8890 (January 7 low)
2nd support: 0.8820 (December 18 low)
3rd support: medium-term downtrend line

Resistance levels above:
1st resistance: 0.8990 or daily EMA 20
2nd resistance: daily EMA 50
3rd resistance: 0.9165 (December 10 high)