AUD/USD Retreats to Test 200-Day EMA Support

AUD/USD (daily chart as of May 20, 2014) broke down below the medium-term uptrend line (line 1 on chart) after attempting to hold it for about two weeks. The pair is poised once again to test the daily EMA 200 (bold green moving average line), which is currently located around 0.9220.

Price tested the daily EMA 200 on May 2 and formed a dragonfly doji candlestick pattern (red arrow on chart), suggesting strong support at the session low, which was right at the daily EMA 200 (an important long-term indicator). Technically, markets trading above the daily EMA 200 are considered to be in a long-term uptrend.

This is the pair’s second attempt (gray shadow) to break out above the daily EMA 200. The first attempt occurred on October 17, 2013 (red shadow), mentioned in our previous analysis. Price needs to hold the daily EMA 200 for a potential longer-term uptrend move.

Note that the daily EMA 100 (blue moving average line) is now approaching the daily EMA 200, which together could provide more substantial support. In the event that price breaks down below the daily EMA 200 with follow-through confirmation, the current uptrend could be placed in jeopardy.

The Reserve Bank of Australia signaled that it was likely to maintain record-low interest rates, according to the minutes of the central bank’s meeting yesterday.

Support levels below:
1st support: daily EMA 200/100
2nd support: 0.9085 (January 13 high)
3rd support: 0.8890 (multiple highs and lows)

Resistance levels above:
1st resistance: short-term downtrend line 3
2nd resistance: 0.9460 (April 10 high)
3rd resistance: 0.9540 (November 6, 2013 high)