The Forex market has remained in focus lately as stock markets consolidate or decline, and we start to see some central bank surprises and major price movements in currencies (notably the Japanese Yen) lately. Although the largest price movements have not been in the AUD/USD currency pair lately, we can say that these two currencies are certainly getting attention, with the USD this is mostly to do with the approaching Fed policy meeting this week which is expected to result in a 0.25% rate hike. The Australian Dollar has real but more minor issues of its own. The US Dollar is always a big deal as it accounts for approximately 80% of FX traded globally.
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The Australian Dollar has a central bank which is under increasing hawkish pressure, mainly because of sticky inflation which the Reserve Bank of Australia sees as too high, and a recent GDP print which was also higher than expected. Despite these bullish fundamentals, some of the major commodities produced by Australia have taken sharp downturns, and has begun dragging the Aussie itself lower, reinforced by declining risk sentiment which still tends to affect the Aussie to some extent.
Turning to the US Dollar, this has strong fundamentals, with slightly higher than expected inflation data released last Friday, leading to an increased expectation that the Fed will hike its interest rate at its next meeting in just a few days.
It looks like fundamentals and sentiment is supporting a bearish case in this currency pair, although maybe not as strongly as technical factors are, so there is a bit of a mismatch here right now.
AUD/USD Technical Analysis
The price chart below shows that the AUD/USD currency pair has made a significant and strong bearish breakdown, after spending some time contained within the ascending linear regression analysis study which can still be seen towards the left of the image. The breakdown has strong momentum and has already broken through several former support levels.
There is clearly short-term bearish momentum, with the first question that comes to mind when looking at the chart likely to be, what will happen with the nearest support level at 0.7122 is tested, which looks likely to happen soon. It is worth noting that there was a very strong bullish inflection here when this level was last reached, meaning there could be strong buying when this level is touched again – enough for a long scalp, anyway.
Traders looking for a longer-term swing trade might want to hope for a bullish retracement to the nearest resistance level at 0.7154. There might also be a new resistance level at 0.7143. A form bearish rejection of any failed test of either of these levels could be a good short trade entry signal, but you will then still have to worry about what happens at 0.7122 if it has not yet been tested again by that point.
AUD/USD H1 Price Chart
Support & Resistance Levels
My previous AUD/USD signal on 7th September was not triggered as none of my key levels were reached that day.
Risk 0.25%.
Trades may only be entered prior to 5pm Tokyo time Tuesday.
Short Trade Idea
Short entry following a bearish price action reversal on the H1 time frame immediately upon the next touch of $0.7143, $0.7154, or $0.7188.
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 run.
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 $0.7123, $0.7103, or $0.7096.
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 further of high importance scheduled today concerning either the Australian Dollar or the US Dollar.
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