Things are looking up in AUD/USD

Since this pair bottomed out at 0.7283 in June, it has been pushing higher making the past week its second week of upside price gains. The recent upside began following a five-week correction of its March-May rally, which topped out at 0.7791.How did this pair turn around? After violating its emas to the downside in early June, it pushed lower for another two weeks until it ran into a strong support zone where its 2005/06 lows coinciding with .618 Ret. were situated (denoted by magenta lines) and then turned northwards putting in its first weekly higher close (0.7433) with a follow-through on Friday closing at 0.7519.

Figure 1: Daily Chart

Where is AUDUSD headed?

Now that the broken falling trendline has been retested, it now serves as a strong support. In addition, last week this pair decisively broke and closed above the 50/100/200 emas,a positive sign of its bullish mode. With two obstacles put behind it, AUDUSD looks set to test its May high (0.7791) but it has to first overcome its May 31’06 high (0.7651) which from the chart is the most significant technical resistance before 0.7791 levels.

Figure 2: Daily Chart

On the contrary, i cannot help but notice the action of stochastic indicator displayed at the bottom of the chart, which is now in an overbought condition. This is a common occurrence with some momentum indicators whenever there is a quick run up or down in price, which can in this case be seen in AUDUSD’s March-May rally where stochastic indicator stayed overbought for the best part of that rally. What this tells us is that an indicator can become overbought and stay overbought for a long time. However, AUDUSD might unwind this condition through either a consolidation or a pullback where 200 ema is expected to serve as support and bring in more buyers.

Happy Trading