AUD/USD Possible Rebound within Overall Bearish Trend

AUD/USD (daily chart as of January 17, 2014) failed to hold the daily EMA 20 and booked a fresh low of 0.8763, after a weak breakout on January 3 above the medium-term downtrend line. A very strong bullish candlestick should be required for a medium-term time frame breakout. The much weaker than expected breakout on January 3 signaled the Aussie’s weakness, at least for the short term.

Bear in mind, though, that the recent retreat (red arrow on chart) occurred right from the daily EMA 50, another strong resistance level above the daily EMA 20, and price fell further following the Australia’s weak employment data release. Current price is testing the 0.8770 area, which is the third support level mentioned in our December 11 analysis. Watch closely the support significance of that level.

Note also that the MACD, RSI, and Stochastic indicators are all making bullish divergences against recent price action, indicating an easing downside pressure within an overall bearish trend. If price can hold the 0.8770 area, the recent retreat would be considered a retest of the medium-term downtrend line before a possible short-term reversal. Otherwise, the currency pair could face further downward movement.