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The Australian dollar is attempting to gain strength against the US dollar, following the early-week drop in the pair towards the 0.7460 support area. The AUDUSD pair is extremely risk-sensitive, and was one of the worst affected currency pairs as global stock markets plunged on Monday due to fears about the new strain of COVID-19.
Market participants often look at the AUDUSD pair as a barometer of risk sentiment, and with the AUDUSD pair back on the rise, alongside stocks, it clearly suggests that traders and investors are feeling less nervous than at the start of the week.
The AUDUSD pair recently hit a new multi-year trading high, around the 0.7627 level this month, marking a gain of over 2,000 points from the March low. I happen to think that the Australian dollar is overstretched and technically overbought, and could be due to correct lower very soon.
Trying to sell the Australian Dollar against the US dollar since March has been like swimming against a strong tide, with traders buying each and every dip aggressively, with both the rise in stock and commodity price helping to underpin the overall bid-tone towards the Australian dollar.
Without a doubt, traders will need to see US dollar strength, and a degree of weakness in the stock market, in order for the AUDUSD pair to start to correct lower. I believe that an interim price top may be for major the AUDUSD pair, around the 0.7627 level, although we could see one final push higher towards the 0.7800 level before a strong reversal takes place.
AUDUSD Short-Term Technical Analysis
The four-hour time frame shows that a large head and shoulders pattern has formed, following the early-week decline towards the 0.7460 support area.
According to technical analysis the neckline of the bearish pattern is located around the 0.7500 level, making it an important spot to watch in the near-term. According to the size of the pattern, the AUDUSD pair could drop towards the 0.7375 area if the pattern is activated.
Source by ActivTrader.
If we see the price moving above the current monthly high, around the 0.7627 level, then the pattern will be invalidated. According to the invalidation target, then the AUDUSD pair could stage a counter-rally towards the 0.7775 area if this scenario occurs.
In reality, selling from either the 0.7775 area, or awaiting a break of the 0.7500 level are probably going to be the best strategies for AUDUSD bears, while bulls are likely to play a breakout strategy if the 0.7627 level is overcome.
AUDUSD Medium-Term Technical Analysis
Looking at the daily time chart, a large amount of bearish MACD price divergence has formed since the 0.6800 level, which really hints that the AUDUSD pair could unwind spectacularly in the future.
In fact, negative MACD price divergences are littered across the daily time frame, and are clearly seen around the 0.7400, and 0.7100 areas, which again points to a shift correction for the AUDUSD pair in the not to distant future.
Source by ActivTrader.
The daily time frame also shows that a bearish rising wedge pattern has also formed, with the AUDUSD pair needing to breaking the 0.7415 level to activate the mentioned bearish reversal pattern.
Technical analysis also shows that the AUDUSD pairs 200-day moving average is located around the 0.6950 level. Which also underscores just how far the AUDUSD has come since the pair turned technically bullish in May above its 200-day moving average.
