On Monday I suggested that we could see a break of the long-term descending channel following a strong rally last week and break of the double bottom neckline.
Since then, we’ve had another batch of weak trade data from China and speculation has risen that the RBA could cut interest rates, which has prevented the channel resistance break and invalidated the neckline break.
The pair is now looking more bearish as a result of this fundamental shift and today’s price action could support this view.
Already we’ve seen a failed breakout attempt above the channel and this has been followed by a break back below the neckline of the double bottom. We’re currently seeing this retested as a level of resistance, which if it holds, could be seen as confirmation of the break back below.
This level roughly coincides with the 50% retracement of the move from Monday’s highs today’s lows which the pair bounced off at the first time of asking. This in itself is quite a bearish signal. As is the failure to break above the marabuzo line of yesterday’s candle.
If this is accompanied by a failure to make a new high on the current 4-hour candle and daily close below the double bottom neckline, it would suggest to me that sentiment in the market has shifted back to the bearish side and further losses could follow.
The next notable support levels could be found around today’s lows – 0.72 – and last Thursday’s low – 0.7165.
It’s worth noting though that a break of 0.72 would also mean a break of the head and shoulders that has now formed, yet another bearish signal which could point to a move back towards 0.70, based on the size of the formation.