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The AUD/USD currency pair continues to trade within a range, as it has over the past week, since making a new long-term high price about one week ago. The consolidation is notable for showing a dominant pattern of lower lows and lower highs, which suggests bearishness. The most recent swing high is arguably a higher high, but I think a better reading of the chart is to see it as a lower high. This currency pair usually moves quickly and easily into new price spaces with relatively few genuine retracements, so when it consolidates, traders can get discouraged easily.
This ranging pattern could be about to change, as the bearish pressure continues, and the price approaches what looks likely to be a very significant support level.
What makes the USD currency pairs interesting now is the renewed strength in the US Dollar, which might continue and accelerate, making breakdowns in the Dollar pairs like this one more likely to happen, whatever technical factors might be working against it.
With the US Dollar looking stronger, this solidifies the anticipation of a potentially significant bearish breakdown beyond the $0.7200 area. Another current factor which might work in favour of a stronger USD and against the Aussie as a sometimes risk barometer, is the prospect of a resumption in kinetic war between Iran and the USA. That is the geopolitical factor, in terms of monetary policy sentiment we also see major banks like Goldman Sachs and the Bank of America recently adjust their rate forecasts on the USA in a more hawkish direction, which can help to boost the value of the USD.
Looking at the price chart below, we can see evidence that the support level at $0.7200 is likely to be significant, and that the price action is getting ready to challenge it by attempting a bearish breakdown below that.
The level is likely to be strong because:
It made a very strong bullish bounce when it was last reached, within just the past few days;
It is completely confluent with a round number ($0.7200).
It is notably confluent with the 50% Fibonacci retracement level on the impulsive move which led to the new 3.5 year high which is shown as the highest area of price activity within the price chart below.
The price is likely to move lower to challenge this because we see technical evidence that the price action is within a series of lower highs and lower lows, and if this tends to continue, the price will move lower.
AUD/USD Technical Analysis
Looking at the price chart below, we can see evidence that the support level at $0.7200 is likely to be significant, and that the price action is getting ready to challenge it by attempting a bearish breakdown below that.
The level is likely to be strong because:
It made a very strong bullish bounce when it was last reached, within just the past few days;
It is completely confluent with a round number ($0.7200).
It is notably confluent with the 50% Fibonacci retracement level on the impulsive move which led to the new 3.5 year high which is shown as the highest area of price activity within the price chart below.
The price is likely to move lower to challenge this because we see technical evidence that the price action is within a series of lower highs and lower lows, and if this tends to continue, the price will move lower.
Watch Out for US CPI (Inflation) Data
The major risk in trading Forex currency pairs involving the US Dollar such as this one today is that there will be a release of a potentially extremely high-impact economic data point: US CPI (inflation) data. This is usually the most important data point each month in the calendar of the Forex market.
The danger of this data release is that if it deviates from the consensus forecast of a rise from an annualised rate of 3.3% to 3.7%, it will likely impact the relative value of the US Dollar. For example, if it comes in at 3.9% or above, the price of this currency pair will move notably lower right away. If it comes in at 3.5% or below, the price of this currency pair will move notably higher.
When there is surprising economic data, technical factors can become quickly irrelevant.
Could the Level at $0.7200 Become Unimportant?
My analysis today is based on highlighting the idea that $0.7200 is going to be today’s major pivotal point, meaning there is potentially a trading opportunity either long or short if the price is reached, with the direction depending upon how the price behaves at that level. However, sometimes levels which look likely to be pivotal end up having no effect on the price at all. The main thing which might reduce the significant of that support level would be a surprise in the US CPI data, or a surprise which made a return to kinetic war between the USA and Iran much more likely.
If the level at $0.7200 becomes irrelevant, then traders should probably look to $0.7175 below for support and $0.7222 above for resistance.
Despite my considered warning, I will be very surprised if $0.7200 is not pivotal today. I can say with high confidence that it looks likely to be a strong level.
My Take on AUD/USD
The thing to watch here today is likely going to be how the price reacts when it reaches $0.7200. This will probably be today’s pivotal point. If we get a strong bullish bounce at the first test of this level, a long trade will likely be a good opportunity; if it decisively breaks below $0.7200 after one or several failed tests from above, a short trade then becomes the opportunity. I find with a breakdown trade in this currency pair, it is best not to wait for a retracement, but to enter on the breakout provided you get an hourly candlestick which closes right at or very near to the low of its range.
Review, Support & Resistance Levels
My previous AUD/USD signal on 5th May was not triggered.
Risk 0.25%.
Trades must be taken before 5pm London time today.
Short Trade Ideas
Short entry following a bearish price action reversal on the H1 time frame immediately upon the next touch of $0.7222, $0.7236, or $0.7275.
Put the stop loss 1 pip above the local swing high.
Move the stop loss to break even once the trade is 20 pips in profit.
Remove 50% of the position as profit when the price reaches 20 pips in profit and leave the remainder of the position to ride.
Long Trade Ideas
Long entry following a bullish price action reversal on the 1H1 time frame H1H1H1 time frame immediately upon the next touch of $0.7200, $0.7175, or $0.7136.
Put the stop loss 1 pip below the local swing low.
Move the stop loss to break even once the trade is 20 pips in profit.
Remove 50% of the position as profit when the price reaches 20 pips in profit and leave the remainder of the position to ride.
The best method to identify a classic “price action reversal” is for an hourly candle to close, such as a pin bar, a doji, an outside or even just an engulfing candle with a higher close. You can exploit these levels or zones by watching the price action that occurs at the given levels.
There is nothing of high importance scheduled today concerning the Australian Dollar. Regarding the US Dollar, there will be a release of CPI (inflation) data at 1:30pm London time, followed by the Fed Chair vote later.
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