AUD/USD (daily chart) as of Tuesday (10/04/2011) has dropped down to a key support target in the 0.9400 price region after five consecutive bearish days that brought the pair plummeting down from its correction highs near parity (1.0000). This occurs within the context of an exceptionally steep downtrend that initiated from the 1.0760 high in the beginning of September. The fall from that high around a month ago broke down below a large rising wedge pattern, and then successive key support levels, including 1.0400, 1.0200, and parity. After last week’s noted bullish correction that stopped just short of parity, price has gone on further to break down below further key support levels including 0.9700 and 0.9550. Now that price has reached its 0.9400 downside target (the 161.8% Fibonacci extension of the rising wedge correction), another bullish correction may be in order, but the overall directional bias continues to be to the downside in line with the strong prevailing bearish trend. The next key support target to the downside resides around the 0.9200 price region, followed by the psychologically important 0.9000 level.
(Click on chart to enlarge. Forex chart key: price on 1st pane, Stochastics 14,3,3 on 2nd pane; horizontal support/resistance levels in black; uptrend lines in green; downtrend lines in red; 50-period simple moving average (SMA) in orange; 100-period SMA in brown; 200-period SMA in dark blue; Fibonacci levels in magenta.)
James Chen, CTA, CMT
Director of Technical Research and Education