AUD/USD Technical Background
The AUD is quite a volatile currency. Over recent years it has fluctuated in value against the USD by as much as two thirds. However although it is volatile, the AUD/USD pair does tend to both trend and turn around quite smoothly, meaning this pair can be a real pleasure to trade. Both the USD and JPY have a large influence upon the value of AUD, and of course the currency has been highly correlated with the price of Gold.
Although this pair likes to move, its moves are often fast and therefore trading solely in the direction of the long-term trend can be counter-productive. Like most USD pairs, engulfing reversal candlesticks and pin bars can be nicely indicative of supply and demand zones in the AUD/USD market, so they are useful technical tools.
AUD has the second-highest interest yield of all the major global currencies, so in terms of carry this pair has a natural long bias.
AUD/USD Analysis
The monthly chart shows that this pair rose dramatically from 2009 to 2012 before beginning a long period of narrowing consolidation.This finally came to an end in May 2013 when the pair broke down dramatically, and it can be said there has been a downwards trend ever since, albeit with large bullish pullbacks.
The monthly chart shows no good flipped support or resistance levels, but does have a few interesting features:
1. The 50% retrace level of the huge upwards move sits just above the 0.85 level which is also psychologically key. This area has not quite been tested yet, and it is likely to prove to be supportive.
2. There is also a bullish inflection a little way above the equally key 0.80 level, confluent with the 61.8% retracement of the aforementioned move.
3. The pair recently broke the swing low established in January 2014 at 0.8659, but only by 18 pips, before moving upwards again. This is a classic 2B failed breakout.
4. The situation above is unclear in this chart.
Therefore we have a few levels to take note of so far, and more detail is revealed by the weekly chart:
1. Late in 2014, there was a significant swing high of a pullback during the sharp move down at the round number of 0.9447. During the long ranging period, this level acted as a lower end of a resistance zone that runs up to the round number at 0.95.
2. There is another flipping level confluent with a round number above, at 0.92, which was also the significant low within the ranging period.
3. The week before last printed a high at the round number of 0.89, which also acted as a supportive low zone in March, so that small range can also be labelled as potentially resistant.
4. The previous three weeks have all printed lows very close together in the 2B breakout area at around 0.8650.
5. The shape of the recent candles is very suggestive that the next move will be up.
Unfortunately, the daily chart does not add a whole lot of additional material to our picture of this pair. We can see that the supportive zone below can be extended from 0.8640 to 0.8670. Most importantly, a look at recent daily candles illustrates well how undecided the current picture is, as we chop around within a consolidating triangle, with some room remaining before the price has to break out.
It can also be said that the daily chart makes an upwards move look less likely than it does on the weekly chart.
Trade Opportunities
Positioning long at bounces off the lower trend line and short off the higher trend line might get you profitably on the right side of any forthcoming triangle breakout.
Trading short off a rejection of 0.89 and long off a rejection of 0.8670 could be a viable strategy.
Trading a retest of either of the triangle trend lines after a breakout might be helpful but it feels narrow enough to suggest that a retest after a breakout is unlikely.
Adam is the Chief Instructor at fxacademy.com and trades Forex on his own account. He has worked in financial markets for over 12 years, including six years with Merrill Lynch.
