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The Forex market has been relatively quiet, calm, and understated lately, with few currencies truly standing out. That said, the Australian and US Dollars are two currencies worth paying attention to. The Australian Dollar carries the highest interest rate of any major currency and has had the most hawkish central bank in recent months, which has hiked the Cash Rate three times within months. The US Dollar is the main driver of the Forex market and is prone to directional movement, although right now its central bank is also hawkish. This currency pair is also in one of the strongest long-term trends you can find in the Forex market, especially in the majors.
This currency pair is particularly interesting at present because the price has formed a classic bearish continuation pattern, a bullish ascending triangle, right at its recent 3.5-year high. When you have a long-term trend, new long-term high prices, and something that suggests higher prices, this is something worth paying attention to, especially if you are a trend or momentum trader.
AUD/USD Technical Analysis
Looking at the price chart below, we can see evidence that bulls have good technical reasons to feel like they have an edge, and to be looking for higher prices.
We see a long-term bullish trend and recent fresh high prices long-term enough to be “blue sky”.
There is a rising trend line, although to be fair it is not mature.
We do see a structure at the top of the chart which is a triangle with an ascending base and a relatively flat top at the high. This is typically seen in technical analysis as a continuation pattern, which suggests that we are going to see fresh multi-year highs.
The price is currently not far from the high.
Finally, it is Thursday today, which tends to see above-average activity and volatility in the Forex market, so it can be a good day to catch a trade, especially if you are a short-term trade who does not want to keep a position open over the weekend.
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Watch Out for Retail Sales Data or Bad News on China or Iran
The major risks in trading Forex currency pairs involving the US Dollar such as this one today are:
Any news suggesting that the kinetic war with Iran will reignite will tend to boost the US Dollar and hit risk sentiment, which can also send the Aussie lower. With the ceasefire on “life support”, a US attack Friday night is quite possible after Trump’s China visit ends.
President Trump is currently in China trying to improve access to the Chinese market for American firms. If he succeeds, it will probably boost risk-on sentiment which should send this pair higher, but if there are obvious setbacks to this goal emerging, it could send the price suddenly lower.
There is a release of US Retail Sales data today. This rarely triggers a very big price movement on its own, but it is another factor as if it comes in much higher than expected, the US Dollar would likely gain at least a few pips.
A Bearish Scenario
My analysis today is based on highlighting the bullish ascending wedge/triangle and long-term bullish trend in this pair, so I am looking to the long side. However, it is worth considering what could change and invalidate this. If I am relying upon the wedge or triangle, then I must see a bearish breakdown below that chart feature as invalidating the bullish case.
Right now, the ascending trend line within the price chart above is confluent with the Fibonacci retracement of 0.382% on the latest significant impulsive move, so there is a case to see it as significant even though it is young. A break below this trend line would be a bearish sign, although it might not invalidate the wedge/triangle. A better line in the sand to watch might be the round number at $0.7200, which is below the technical feature also the Fibonacci 50% retracement level.
My Take on AUD/USD
Bulls looking for a long trade will face a choice between waiting for a breakout to a new high price or buying on the dip. My preferred method of trading this is to wait for a daily close above the recent 3.5-year high price. Traders looking to buy a dip will probably do well to buy at a bounce from a support level, although there are none nearby which look especially attractive.
Watch how the price behaves at $0.7275 and at $0.7200 for clues at to what might develop next. If you are motivated to buy the AUD, you might want to try a cross using a currency you see as weaker than the USD.
Review, Support & Resistance Levels
My previous AUD/USD signal on 12th May was not triggered.
Risk 0.25%.
Trades must be taken before 5pm London time Friday.
Short Trade Ideas
Short entry following a bearish price action reversal on the H1 time frame immediately upon the next touch of $0.7275, $0.7321, or $0.7346.
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 $0.7241, $0.7234, or $0.7200.
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 Retail Sales data at 1:30pm London time.
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