MarketPulse | Dec 30, 2013 12:48AM ET
Downtrend in AUD/USD is strong with prices gaping lower this morning, continuing the decline that started last Friday following the failure to break 0.893 resistance. What is even more impressive is that this decline seems to be running itself without any new announcements/economic news releases that could have triggered additional bearish sentiment. Furthermore, risk appetite seems to be building up, not decreasing with Australia's main stock index ASX steadily around 100 points higher than 1 week ago. Some may point to the strengthening USD as the reason for AUD/USD's decline, but looking at EUR/USD and GBP/USD which have rallied recently, this is not a valid explanation. It is clear that AUD/USD is going lower more on AUD weakness.
Hourly Chart
This is actually dangerous for the bears right now as this strong bearish sentiment occurred when the market is thin and the likelihood of irrationality is strong - increasing the chances of a pullback should normal trading resume. Stochastic indicator agrees as well with Stoch curve already deeply within Oversold region and favouring a bullish pullback in the near term.
That being said, it should be noted that prices are around 40 pips away from 0.888 significant support turned resistance. Hence, even if the pullback does happen, overall bearish bias will not be invalidated and we could see even stronger bearish movements coming in early 2014.
Daily Chart
Given that volume is thin, any breakout attempt need to be treated with a huge grain of salt as it may not be representative of true market sentiment (even though AUD/USD is bearish both fundamentally and technically). Hence given current uncertainty, traders who do no have any positions right now may be better off waiting for stronger signals when normal trading resumes.
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