Bearish Trend on AUD/USD at Critical Resistance

07/14/2009 12:01 am EST

Focus: FOREX

James Chen

Chief Technical Strategist, FX Solutions

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(Price on 1st pane, Slow Stochastics on 2nd pane; horizontal support/resistance levels in yellow; uptrend lines in green; downtrend lines in red; 50-period simple moving average in light blue.)

Recent bearish price action on AUD/USD, a daily chart of which is shown, has once again brought the pair down to a critical support/resistance level in the 0.7700 price region, an area that has served in the past couple of months both as a substantial resistance turning point and a substantial support turning point.

This drop down to major support occurs after price formed a tentative top by breaking down successively below two significant uptrend support lines. In the event of a pronounced bounce up off this 0.7700 level, the clear ultimate resistance target to the upside resides around the important uptrend high in the 0.8260 price region.

Any breakout above that level would confirm an uptrend continuation. In the event of an impending breakdown below the 0.7700 support, a further strong support target to the downside resides in the 0.7450 price region, which represents a significant prior swing low in the uptrend.

By James Chen, chief technical strategist, FX Solutions

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