Last night, the Australian dollar tumbled after poor manufacturing data from China. Price action on AUD/USD tentatively found support after falling 66 pips to .8936. The chart above displays a potential bullish ABCD pattern that confirmed point D with the 161.8% Fibonacci expansion level of the B to C leg. The current bullish bounce may have limited upside as price appears to be respecting the key .9000 resistance level.
The macro trend is bearish for the Australian dollar. Weaker Chinese data is becoming a theme, emerging market concerns run strong, and the Reserve Bank of Australia is likely to remain neutral regarding monetary policy.
Bearish Hidden Divergence
The 60-minute chart on AUD/USD displays a potential bearish hidden divergence that could help signal a decline towards the .8920 level, which happens to be the 38.2% Fibonacci retracement of the January 24th low to this February's high move. Further support lies at the 50.0% Fibonacci retracement level at .8869.
If price exhibits bullish behavior and surges above the .9000 level, an upside target of .9143 will be our immediate target and that would be followed by the 200-day SMA at .9226. A long-term target of .8500 remains the goal for the RBA.
The trade: Sell AUD/USD at .8975 with a stop loss at .9000 and a take profit at .8925. The Risk/Reward Ratio is 1:2.
Edward J. Moya
WorldWideMarkets Online Trading