The Australian Dollar is the big story in the Forex market at the moment, after falling without mercy for 10 days in a row (if today's losses are confirmed), erasing in the process almost 600 pips or a 6% off its value vs. the USD. Many traders are understandably starting to question how far can the decline go until a meaningful correction is in place.
To find clues, let's look at the price action history. Firstly, it is worth noting how the trend has been progressing in a non-volatile fashion, with some pretty consistent order flow and weak pullbacks, suggestive of low participation from the submissive side.
Yesterday's attempts to create deeper, wilder corrective swings failed miserably after price faced with noted supply at 0.9875-90, from where the selling resumed in earnest. Before a trend turns, there should be a more consistent buying activity producing stronger rebounds - ideally taking out previous swing highs - an indication that the tide is turning.
Only when a trend goes from non-volatile to volatile, barring a major shocker, that is when a trend reversal could be coming, a scenario that still is not present in the AUD/USD order flow, thus bounces should be consistently welcomed by grateful sellers at supply areas.
Moreover, the Australian dollar/U.S. dollar outright liquidation is developing in a textbook impulsive/corrective nature, with the red candles being the most present, largest in the entire set and plenty of closes towards the lows vs. corrective smaller bullish candles, which also show a mixture of indecisiveness when moving higher (buyers not convinced).
The next major test to measure sellers dominance will be at 0.9750/10 demand, as per last June 6, 2012, bullish sentiment, with a penetration setting the stage for larger losses towards early June'12 lows at 0.9580. On the upside, tough battles lie ahead for the Aussie to upgrade its "bullish" technical status. As mentioned above, we should ideally see a wilder two-way volatility hinting at higher buyer's participation in the market.
In terms of levels, price should first regain 0.98 barrier followed by 0.9820/30 supply - as per the latest sell-off origin - although that would be only the beginning, as no real prospects of buying strategies may make much sense until the 0.9920 resistance is out of the way.