Markets have seen some drama, this week, driven mostly by the strong Democratic victory in the US Congressional election which result in them now controlling both Houses. Stocks are clearly seeing some sectoral rotation as a result, and it has also helped weaken the US Dollar. However, the Australian Dollar has not been a major beneficiary of this move, putting the AUD/USD currency pair in question as a bullish vehicle for now. Let’s look at the two currencies first.
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AUD/USD Fundamental Analysis
The Australian Dollar has a cautiously bullish fundamental outlook. The RBA’s November 3 rate increase of 25 basis points to 4.85% provides yield support, with the central bank expecting inflation to remain above 3% over the coming year. However, the split 6–3 vote and market expectations of a possible December pause limit the prospect of further policy-driven gains. Australia’s stronger-than-expected September trade surplus of A$2.83 billion adds support, while softer iron ore prices remain a headwind for the commodity-sensitive currency.
The US dollar has a cautiously bearish near-term bias, as falling Treasury yields and improving global risk appetite outweigh support from expectations of further Federal Reserve tightening. The Fed held interest rates at 3.75%–4.00% on 28th October, citing strong economic growth and still-elevated inflation, while two policymakers preferred a quarter-point increase. Markets subsequently priced roughly an 81% probability of a December hike, providing underlying support for the dollar. However, declining Treasury yields are weakening that support in the immediate term.
It looks like fundamentals are supporting a case for a weakly bullish outlook in this currency pair.
AUD/USD Technical Analysis
My technical analysis matches the fundamental analysis, which is a good sign for reliability – looking at a price chart, I would also categorise it as "weakly bullish". The US Dollar Index is clearly falling, and some currencies like the British Pound are rising very strongly against it, but the Aussie is making only modest gains.
The hourly price chart below shows that the price fell then rose on the US election results, just as many notably risky assets did. The price then made a bearish retracement and in that found support confluent with the huge round number at 0.7000 which is a sign that bulls have the upper hand. However, the price action since then, while bullish, has been subdued, with the price held by the 0.7020 area. This suggests that bulls lack conviction.
An established breakout above 0.7020 would be a bullish signal and suggest bulls are developing more conviction. The price could then rise to the 0.7040/50 area which would be the next test for bulls.
A more bearish technical scenario would be if the price broke down below 0.7000/0.6990 and began to trade comfortably below that area. This could open the way for a decline back to the recent swing low near 0.6950.
AUD/USD H1 Price Chart – Weakly Bullish, Supported at 0.7000
My Take on AUD/USD Today
I take a weakly bullish bias. I am not interested in a short trade today. Two opportunities which are likely to set up: either a bullish breakout beyond 0.7020 or a bullish bounce at 0.7000. The latter is riskier, but has a much better reward to risk ratio. If we get a breakout beyond 0.7020 first, skilled traders might drill down to very short time frames and try to buy a dip in bullish price action if there is enough room to get to the 0.7050 area to make the risk worthwhile.
Support & Resistance Levels
My previous AUD/USD signal on 28th October gave a profitable long trade from the bullish rejection of the support level which I had identified at 0.7022.
Risk 0.25%.
Trades must be taken before 5pm Tokyo time Friday.
Short Trade Ideas
Go short following a bearish price action reversal on the H1 time frame immediately upon the next touch of 0.7047 or 0.7082.
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 0.7001 to 0.6994, or 0.6949.
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.
Concerning the US Dollar, the Federal Reserve will be holding a policy meeting at 6pm London time.
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