AUD/USD Bouncing Off Critical Resistance Level

05/15/2009 12:27 pm EST

Focus: FOREX

James Chen

Chief Technical Strategist, FX Solutions

(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.)

Price action on AUD/USD, a daily chart of which is shown, has formed a tentative top right at the key 0.7700 support/resistance level. Shortly after that price region was reached earlier in the week, the pair retreated and has been consolidating significantly below that level. All of this occurs after price made a quick and steep run-up to the 0.7700 level, breaking several important resistance points in the process.

Currently, technical momentum indications are hinting that upside momentum on the steep run-up has possibly exhausted itself, and a bearish correction may potentially be due. A continued fall that hits and breaks below 0.7400 could easily target further support to the downside around the 0.7250 region, a significant prior support/resistance consideration.

Any continuation in the current uptrend would only be signaled on a breakout above 0.7700, in which case key resistance targets to the upside include 0.7800 and the psychologically important 0.8000 level.

By James Chen, Chief Technical Analyst, FX Solutions

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