Featured Trade: AUD/USD bearish breakdown from range

AUD/USD bearish breakdown from range.

Short-term technical outlook on AUD/USD (Wed 02 Jan)




Key elements

  • Since its 28 Oct 2018 low of 0.7021, the “risk sensitive” AUD/USD had drifted higher and staged a bullish break above its major primary descending channel resistance in place since Jan 2018 high of 0.8135. However, the aforementioned bullish breakout lacked the follow through upside momentum and started to reverse down from its recent medium-term swing high area of 0.7380/90 printed on 03 Dec 2018 coupled with a bearish divergence signal seen on the daily RSI oscillator. These observations suggest that a potential failure bullish breakout and the revival of medium-term downside momentum of price action (see daily chart).
  • In the short-term, the pair has staged a bearish breakdown in today, 02 Jan Asian session from a minor “Symmetrical Triangle” range configuration in place since 28 Dec 2018 low of 0.7014 reinforced by the China Caixin Dec PMI data that has shown a contraction reading of 49.7, down from 50.2 in Nov. This latest set of data has indicated a significant deterioration in China’s manufacturing sector hampered by on-going trade tensions with U.S. and global liquidity tightening conditions (see 1 hour chart).
  • The key short-term resistance stands at 0.7070 which is defined by the “Symmetrical Triangle” range top and the 23.6% Fibonacci retracement of the recent decline from 13 Dec high to 28 Dec 2018 low.
  • The next significant near-term supports rest at 0.6925 and 0.6900 which are defined by the 0.382 Fibonacci extension of the on-going minor impulsive down move from 03 Dec 2018 high of 0.7393 to 28 Dec 2018 low of 0.7014 projected from the 27 Dec 2018 minor high of 0.7070, the range top of the “Symmetrical Triangle” and the lower boundary of the minor descending channel in place since 03 Dec 2018 high (see 1 hour chart).

Key Levels (1 to 3 days)

Intermediate resistance: 0.7030

Pivot (key resistance): 0.7070

Supports: 0.6950, 06925 & 0.6900

Next resistance: 0.7150/7175

Conclusion

The AUD/USD is now looking vulnerable on the downside as it is now challenging the recent 28 Dec 2018 minor swing low of 0.7014. If the 0.7070 key short-term pivotal resistance is not surpassed, the pair looks set to enter into a fresh impulsive downleg sequence, a continuation of the major primary downtrend in place since Jan 2018 high of 0.8135 with a potential short-term downside trajectory set at the 0.6925 and 0.6900 near-term supports.

However, a clearance above 0.7070 invalidates the bearish scenario for an extension of the corrective rebound towards the next intermediate resistance at 0.7150/7175

Charts are from eSignal



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