Trend, Trend Exhaustion And The Shifting Ground

(…) The proximity to the 38.2% Fibonacci retracement encouraged the sellers to act and the pair slipped back below the upper line of the red channel and also below the January peak. This invalidation of the trend channel breakout serves as a strong bearish sign in itself, and in combination with the sell signals generated by the indicators increases the probability of further declines.

We see that the situation developed in tune with our assumptions. AUD/USD moved sharply lower, making our short positions even more profitable (our subscribers were prepared in advance and we opened the shorts in close vicinity of the upper border of the declining red trend channel on Monday).

Thanks to today’s downswing, the pair not only verified the earlier breakdown below the upper border of the declining red trend channel but also cut through the orange zone like a hot knife through butter. The orange zone used to be a resistance and with the breakout last week, it looked like it would become a support now. However, the support didn’t hold and thus the zone has back again turned into a resistance. This is what invalidation of a breakout looks like – a strongly bearish sign on its own.

On top of that, the sell signals generated by the daily indicators remain on the cards. They suggest further deterioration and a realization of our Monday’s scenario in the very near future, namely that we’d likely see a test of the recent lows.

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