Retracement in a downtrend

• AUD/USD is retreating into a short-term downtrend.
• The correction is quite shallow and will probably wear out and lead to a resumption of the bear trend.

AUD/USD reversed the trend at the August 29 highs and started to decline. Since then, the pair has established a sequence of falling highs and lows, possibly indicating that the short-term trend has reversed and is now bearish.

Given that it is a cornerstone of the technical analysis theory that “the trend is your friend,” the odds now favor an extension of the downtrend to lower lows.

AUD/USD 4 Hour Chart

AUD/USD dipped to 0.6685 on September 4 and has since pulled back in a counter-trend reaction. This correction was quite shallow, however, and is likely to peter out soon, after which the bears will again push the price lower in line with the trend.

A break below the low of 0.6685 would confirm the continuation of the downtrend. The next target below this is 0.6645, followed by 0.6587, the 0.50 Fibonacci retracement level of the August rally.