AUD/USD forms key chart pattern on rally pullback
James Chen September 9, 2016 2:24 AM
<p>AUD/USD pulled back on Thursday as the US dollar made a modest rebound and the Australian dollar took a breather from its recent rally. This […]</p>
AUD/USD pulled back on Thursday as the US dollar made a modest rebound and the Australian dollar took a breather from its recent rally. This pullback has tentatively formed a bearish chart pattern that suggests a potential retreat from resistance.
Prior to Thursday, the current week has seen AUD/USD in strong rebound mode as the US dollar has been pressured on weak US economic data while the Australian dollar has surged, in part due to the Reserve Bank of Australia (RBA) refraining from cutting interest rates early in the week. The RBA had previously cut rates in both May and August to progressively lower record lows, but kept the cash rate unchanged at 1.50% on Tuesday. Shortly after the RBA decision, Australia’s quarterly GDP reading showed a disappointing 0.5% against an expected 0.6%, which pared some of the Australian dollar’s RBA-driven gains.
As noted, Thursday’s early surge followed by a sharp pullback has tentatively formed a bearish chart pattern. This pattern is alternately known as a “pin bar” or “shooting star candle,” which is characterized by a small lower body coupled with a long upper shadow that occurs after a rally. Oftentimes, this type of pattern suggests a subsequent downside reversal. If this reversal indeed occurs, it would be at a critical technical juncture – the underside resistance of a key uptrend line extending back to May’s lows.
Any continued downside moves for AUD/USD, however, would be largely contingent upon US dollar strengthening, which would require some positive US economic data in the run-up to the next FOMC meeting in less than two weeks. In this event, further downside momentum for AUD/USD on a bearish reversal could begin to target key downside support objectives at 0.7500 and then 0.7300.
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