The AUDUSD has moved into a consolidation area defined by a series of lows going back to March/April 2014. The lowest low over that period, came in at 0.9201. The highest low is around the 0.9236 level (see yellow area in the chart below). There been 7 separate tests of this area over the last 5 months, and each time, the market has bounced. On the last move higher from the low on August 21, the price of the pair moved above the 100 day moving average (blue line in the chart below), not just once but twice. Yesterday, when the price moved back below the hundred day moving average, there was strong momentum selling. That selling is obviously following through in trading today. Is the market finally giving up on the topside potential? Is it ready for a break lower?
Needless to say, the question now is “Will the 8th test be the one that breaks out to the downside?”. If so there is another line of defense for the buyers against the 200 day moving average (green line in the chart below) and the 38.2% retracement of the move up from the 2014 low to the 2014 high. That level comes in at the 0.9181 area. A move below it should trigger additional selling with the 0.90817 level as the next key target (50% retracement of the same year’s trading range). What is the risk now?
AUDUSD back in the low consolidation area (0.9201-36)
Looking at the 5 minute chart below, the 38.2% to 50% retracement area of the trend move lower comes in at the 0.9246 to 0.9254 area. If the sellers are to keep in control, I would not expect the price to move back above this area (risk defining level now).
The AUDUSD has been non-trending over the last 5 months. Non-trending markets transition into trending markets. Clearly in order to trend further, there has to be a break of the consolidation area and momentum. If the price today can stay below the aforementioned resistance (i.e. the risk defining level above), there is the chance that the momentum can continue to – and through – the low at 0.9201 and then the 200 day moving average at some point soon. If so, there should be further downside momentum for the pair as traders build on the break out.
AUDUSD risk is 0.9246-54 now. The price should not trade above if the sellers are to remain in control.
