The Australian Dollar has rallied more than 1.3% off the yearly lows against the US Dollar with the late-May breakout now testing initial resistance targets. These are the updated targets and invalidation levels that matter on the AUD/USD charts heading into the weekly / monthly open. Review this week’s Strategy Webinar for an in-depth breakdown of this setup and more.
AUD/USD Daily Price Chart
Technical Outlook: In our last AUD/USD Trade Update we noted that price was approaching initial resistance at,“6911 backed closely by the upper parallel of the pitchfork we’ve been tracking since the monthly high- ultimately a topside breach / close above 6934 is needed to suggest a larger recovery is underway.” Aussie closed the month at 6936 with price rallying into a confluence resistance early in the week at 6965/72– the advance would need to hold below this range to suggest this rebound was merely corrective.
That said, a breach / close above 6972 is needed to fuel the next leg higher targeting the yearly low-day close at 7005– look for a bigger reaction there IF reached. The trade remains constructive while within this near-term ascending channel formation.
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AUD/USD 120min Price Chart
Notes: A closer look at price action shows Aussie trading within the confines of an ascending pitchfork formation extending off the May lows with the 75% line converging on the 6965/72 resistance zone. An outside-reversal candle off the highs alongside near-term price divergence into this zone suggests the immediate advance may be vulnerable here – Initial support rests at 6944 backed by the weekly open at 6926. Broader bullish invalidation rests at 6911. A topside breach keeps the focus on the upper parallel (currently ~6990) backed by the 7005.
Bottom line: The immediate focus is on a near-term resistance here at 6965/72. The advance may be at risk near-term but he broader focus remains higher while above 6911. From a trading standpoint, a good spot to reduce long-exposure / raise protective stops – look for downside exhaustion / fade weakness on a pullback into the lower parallels with a breach / close above this region needed to mark resumption of the late-May breakout. Keep in mind the Reserve Bank of Australia (RBA) interest rate decision is on tap tonight with markets largely expecting a 25bps cut- tread lightly. Review my latest AUD/USD Weekly Price Outlook for a longer-term look at the technical picture on the Loonie.
For a complete breakdown of Michael’s trading strategy, review his Foundations of Technical Analysis series on Building a Trading Strategy
AUD/USD Trader Sentiment
- A summary of IG Client Sentiment shows traders are net-long AUD/USD- the ratio stands at +1.75 (63.6% of traders are long) – bearishreading
- Traders have remained net-long since April 18th; price has moved 2.2% lower since then
- The percentage of traders net-long is now its lowest since Apr 18th
- Long positions are4.3% lower than yesterday and 12.2% lower from last week
- Short positions are18.0% higher than yesterday and 18.0% higher from last week
- We typically take a contrarian view to crowd sentiment, and the fact traders are net-long suggests Aussie prices may continue to fall. Yet traders are less net-long than yesterday & compared with last week and the recent changes in sentiment warn that the current AUD/USD price trend may soon reverse higher despite the fact traders remain net-long.
Relevant Australian / US Data Releases
Active Trade Setups
– Written by Michael Boutros, Currency Strategist with DailyFX
Follow Michael on Twitter @MBForex