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The Australian dollar has had a tough start to the new trading week against the US dollar as falling stock market due to increase COVID-19 cases, and soft data from China and the United States rocked the AUDUSD pair.
Commodity prices acted accordingly as stock markets started to sell-off and dragged the risk-sensitive AUDUSD pair with it along the way. Falling Asian stocks are generally very bad for the Australian dollar currency.
Figures for Chinese July retail sales, industrial production and urban investment all missed forecasts, which was against what the market was thinking. Now markets a fearing that this trend that is only likely to get worse given the recent tightening in coronavirus restrictions in China.
Traders and investors will remember that troubles in China caused the global stock market meltdown in April 2020, as COVID-19 stared to breakout in China. China is currently the life blood of the economy and a big driver for economic growth.
According to the ActivTrader market sentiment tool some 61 percent of traders are bullish towards the AUDUSD pair, which to me still suggest further upside is likely in the short-term.
In order for the AUDUSD to really build sustained upside momentum we probably need to see heavily negative sentiment towards the pair kicking in. As things stand, the modest bullish bias is acceptable.
AUDUSD Short-Term Technical Analysis
The four-hour time frame shows that a large head and shoulders pattern has formed, following the recent rise back towards the 0.7400 resistance level and subsequent reversal to the 0.7310 area.
According to the overall size of the bearish price pattern a break above the 0.7400 resistance level is needed to invalidate the pattern. A break under the 0.7290 level exposes further downside towards the 0.7200 level.
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AUDUSD Medium-Term Technical Analysis
Looking at the daily time chart the big question for traders is whether a double-bottom price pattern has formed or indeed whether the much larger head and shoulders pattern is to play out to its full potential.
If a double bottom is confirmed then a big push back towards the 0.7400 to 0.7500 area is likely, however, if the head and shoulders pattern plays out, then a drop towards the 0.7000 level is still possible.
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