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The Australian dollar is sliding lower against the US dollar as COVID-19 concerns are causing financial markets and risk-sensitive pairs, such as the AUDJPY and AUDUSD, to turn sharply lower.
The ongoing lockdowns in Sydney and Victoria are causing fears amongst AUDUSD traders that the Reserve Bank of Australia will actually increase its QE bond buying programme during the August policy meeting.
This weeks Reserve Bank of Australia July meeting minutes were indeed lagging, as they did not discuss the implications of the COVID-19 variant, which is causing the economic health of the Australian economy to deteriorate.
Commonwealth Bank of Australia, one of the big four banks in Australian, now expects the RBA to reverse its July meeting statement that the central bank will taper QE bond-buying tape. This is also one of the reasons why the AUDUSD pair is selling off broadly this week.
A huge head and shoulders pattern is now in full swing, making the AUDUSD pair a very difficult buy right now. The pattern is actually predicting a deeper drop still, with the 0.7000 level the final target.
According to the ActivTrader market sentiment tool some 68 percent of traders are bullish towards the AUDUSD pair, despite the monthly decline of around 250 points so far.
In order for the AUDUSD pair to finally rally we probably need to see negative sentiment, and a change in the fundamentals. As things stand, everything is pointing to more AUDUSD losses.
AUDUSD Short-Term Technical Analysis
The four-hour time frame shows that a breakout from the lower Bollinger Band has taken place. This is very bearish for the AUDUSD pair over the short-term.
Heavy losses towards the 0.7280 or 0.7200 levels should be expected in the short-term. The RSI indicator and the Stochastic indicator are both bearish, however, they are both oversold.
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AUDUSD Medium-Term Technical Analysis
Looking at the daily time chart a head and shoulders has been activated, following last week breach of the 0.7580 support level. The AUDUSD pair remains extremely vulnerable while the price trades under neckline resistance.
According to the overall size of the head and shoulders pattern, a drop of at least 400 points is in progress. However, traders do need to be careful as a much larger bearish pattern could form if the pair reaches the 0.7000 level.
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