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The Australian dollar is coming under heavy selling pressure against the US dollar as commodity prices start to take a hit due to renewed fears over the latest wave of infections in Europe placing the so-called reflation trade into question.
Asian stocks are heavily in the red today alongside the Australian ASX200, while the US dollar has moved back into vogue with traders and is moving higher across the board against most major currencies except the usual safe havens, such as the Swiss franc and the yen.
Adding further pressure to the risk-off narrative, one of the world’s largest container ships is currently trapped in the Suez canal and is blocking close up to one-hundred container ships attempting cross passing through the straight.
The recent selling towards the AUDUSD pair has triggered a bearish head and shoulders, causing a sudden drop below the 0.7600 support level, and potential second day of heavy technical selling towards the pair.
Moves in the commodity market, particular iron ore, gold and oil influences the Australian dollar’s price behaviour. With gold, and oil in entrenched in correction mode the AUDUSD pair is unlikely to rally any time soon.
Perhaps the biggest mover for the AUDUSD pair is sentiment. Fears surrounding the reflation trade being delayed is likely to cause the pair to head lower for longer. The longer that global lockdowns remain in the place the stronger the chances of a deeper correction.
According to the ActivTrader market sentiment tool some 61 percent of traders are bullish towards the AUDUSD pair. Considering that the pair has lost close to three-hundred points in just over a week buyer need to be careful.
The AUDUSD pair is prone to trending price behaviour, meaning that it tends to pick a direction and stick to it. The latest down move could extend on a multi-day basis, and probably head lower than bulls are expecting.
AUDUSD Short-Term Technical Analysis
The four-hour time frame continues to show that a small head and shoulders pattern is in play, following the recent break under the 0.7700 level, and is close to reach its full downside potential
According to the overall size of the head and shoulders pattern the AUDUSD pair could reach the 0.7550 level in the short-term horizon. It is possible that a minor technical bounce in the AUDUSD pair could occur once the objective of the small bullish pattern is achieved.
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AUDUSD Medium-Term Technical Analysis
Looking at the daily time chart, a massive head and shoulders pattern has been activated, following the recent move below the 0.7600 support level.
According to the overall size of the bearish price pattern, the AUDUSD pair could be about to drop towards the 0.7200 level.
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AUDUSD traders should be aware that the pair will turn technically bearish for the first-time since June last year if the price moves below the 0.7400 support level.
