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Bullish RSI Divergence on Daily Chart Suggests AUD/USD Due for Rebound

Bullish RSI Divergence on Daily Chart Suggests AUD/USD Due for Rebound

Christopher Vecchio, CFA, Senior Strategist
Bullish_RSI_Divergence_on_Daily_Chart_Suggests_AUDUSD_Due_for_Rebound_body_Picture_1.png, Bullish RSI Divergence on Daily Chart Suggests AUD/USD Due for Rebound

Chart prepared by Christopher Vecchio using Marketscope 2.0

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FOREX Analysis: Bullish RSI divergence on the daily chart (price sets new lows but momentum fails to keep pace) suggests that the selloff may be exhausted in the near-term. However, given the scope of recent declines – over 1200-pips in ten weeks – it’s evident that a new paradigm is guiding the AUDUSD. As such, we prefer selling rallies in the pair but note that a major support zone at $0.9140/220 (38.2% Fib October 2008 low to July 2011 high [blue line], 61.8% Fib March 2010 low to July 2011 high [purple line]) will require new catalysts for a break.

FOREX Trading Strategy: On bounces during the downtrend since April 11, the AUDUSD has often traded back towards the 23.6% from the April high to the low at the time before turning. In this case, that would suggest breaking former June lows at 0.9320 before 0.9485/90 (23.6% Fib April high to June low). Generally speaking, the fundamentals support a weaker AUDUSD as US Treasury yields rise and Chinese growth concerns proliferate. (Note: CFTC’s COT positioning shows non-commercial traders are the most bearish ever; complacency and a lack of fresh sellers can lead to violent short squeezes, which might provoke a greater than expected rally in the pair).

--- Written by Christopher Vecchio, Currency Analyst

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DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.