Markets have seen a stronger recovery in risk sentiment this week, although risky assets have been in bearish retracements over the past few hours. Risk sentiment can have a major impact upon the behaviour of this currency pair. This is putting the AUD/USD currency pair in focus, especially following its bullish breakout, and we have seen some interesting technical developments over the past few days. Let’s look at the two currencies first.
The Australian Dollar retains a cautiously bullish fundamental outlook, supported by renewed expectations of further RBA tightening. Deputy Governor Andrew Hauser’s warning that the inflation outlook has deteriorated has strengthened the case for a November rate increase underpins the currency’s interest-rate appeal, although slowing employment and consumption complicate the decision. Stronger-than-expected Chinese growth has also supported the Aussie by improving the outlook for Australian export demand.
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The US Dollar has a mixed fundamental outlook, with persistent inflation supporting the prospect of further Federal Reserve tightening, while easing Treasury yields and expectations of an October policy pause weigh on near-term momentum. Markets broadly expect rates to remain unchanged next week but still anticipate a possible December hike, leaving the dollar supported by restrictive policy without an immediate tightening catalyst. Energy-driven price pressures could revive its interest-rate appeal if they push US yields higher again, although weaker housing demand highlights the economic costs of elevated borrowing rates. The next Fed decision will be crucial: guidance favouring further tightening would support the dollar, whereas greater emphasis on slowing growth could extend its recent weakness.
It looks like fundamentals are moving towards supporting a more bullish case in this currency pair.
AUD/USD Technical Analysis
The price chart’s standout recent technical feature is the bullish breakout above the former resistance level just above 0.7000, and the price action flipped this level to act as support – a classic sign of a successful breakout which is likely to hold.
The price advanced following this breakout over the past day, approaching close to the next resistance level which I have identified at 0.7042 before making a bearish retracement. Within the retracement, the new higher support level at 0.7010 which was formerly resistance has continued to hold – this is a bullish sign.
Note however that the price action has passively broken below the lower boundary of the price channel / linear regression analysis shown within the price chart below. This could be taken as a minor bearish sign, given more weight as the price action gets increasingly heavy on that support level, but I think overall the picture remains bullish after just reaching a new four-week high price.
A long trade from any bounce off the nearest support levels at either 0.7010 or 0.6998 would look attractive.
AUD/USD H1 Price Chart – Resistance Turned Support?
Support & Resistance Levels
My previous AUD/USD signal on 21st October was not triggered.
Risk 0.25%.
Trades may only be entered prior to 5pm Tokyo time Friday.
Short Trade Ideas
Short entry following a bearish price action reversal on the H1 time frame immediately upon the next touch of $0.7042 or $0.7075.
Place the stop loss 1 pip above the local swing high.
Adjust the stop loss to break even once the trade is 20 pips in profit.
Take off 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 $0.7010, $0.6998, or $0.6964.
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 regarding either the Australian or US Dollars.
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