AUD/USD Technicals – Stoch Divergence Hints Bearish Move

Hourly Chart

The downtrend in AUD/USD continues, and was accelerated during US session yesterday on a sudden surge in USD gains due to yet another Fed Tapering speculative play. However, prices in AUD/USD has recovered significantly since, not surprising because the reason for the increased speculation was weak at best, and irrational at worst. Nonetheless, the pullback in prices continue to stay below the 0.931 soft support turned resistance, underpinning the broad bearish trend that is still in play. Furthermore, there is a stochastic divergence seen, with current Stoch levels higher than the past 2 Stoch peaks, yet prices are clearly trending lower. This increases the bearish conviction, and opens up a move towards the purple descending trendline.

However, considering that prices would be around the recent swing low of 0.927 when the trendline is tagged (assuming we move lower right now), and that stochastic will also be likely within the Oversold region, the likelihood of further strong bearish momentum will be lower, and prices may only push lower slightly along the trendline or perhaps even rebound off it.

Daily Chart

This is echoed by the Daily Chart, which shows prices as bearish as  with the break of 0.932. However, prices have been using Channel Top as support since the bearish move post 0.952 rejection on 7th Nov, suggesting that sharp “breakout” momentum may be lacking. Furthermore, Stoch readings suggest that current bearish momentum may be over-extended, and a bullish pullback may be possible. Hence, the breach of 0.932 may turn out to be a “fakeout”, and a return to the 0.932 – 0.952 trading range could still be possible.

That being said, fundamentals continue to point towards a weaker AUD. Latest Wage Cost Index which came in weaker than expected adds yet one more item on the bearish list of economic news release in recent months. With USD looking to strengthen in 2014 if not Dec 2013 due to Fed’s tapering action, AUD/USD outlook remains firmly lower in the immediate future.

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