December 5, 2013 – AUD/USD (daily chart) has extended its six-week decline to hit key support around the 0.9000 psychological level. In the process, the currency pair established a three-month low yesterday. The current drop occurs after the pair formed a head-and-shoulders reversal pattern with its late-October high at 0.9757. The substantial bullish correction that was halted by this head-and-shoulders pattern represented a 50% Fibonacci retracement of the long and steep plummet from April to August. Shortly after breaking down below the neckline of this reversal pattern in early November, there was a brief pullback to the upside before the pair swiftly began its current slide.
With the downside target of the head-and-shoulders pattern having already been fulfilled around the 0.9050 level, the directional outlook for AUD/USD continues to look bearish. Currently, the clear downside objective after having dropped to the 0.9000 psychological support level now resides around the 0.8850-area multi-year low, which was hit in early August. Any subsequent breakdown below this level would clearly confirm a continuation of the overall bearish trend, with a further downside target around 0.8600. Key upside resistance currently resides around the 0.9200 level.
James Chen, CMT
Chief Technical Strategist
City Index Group
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