Chart of the day - AUD/USD at major resistance zone ahead of RBA

AUD/USD at risk of a minor bearish reversal below 0.7670/7690

Short-term technical outlook on AUD/USD (Tues, 05 Jun)



Key technical elements

  • The recent rally of 3.4% (250 pips) from its 09 May 2018 low of 0.7410 has led to AUD/USD back to retest a major resistance zone of 0.7655/7690 which is defined by the pull-back resistance of the former major bearish “Ascending Wedge” support from Jan 2016 and the former medium-term swing low area of 20 Mar 2018 (see daily chart).
  • Elliot Wave Principal/fractal analysis suggests that the aforementioned rally from 09 May 2018 low of 0.7410 is more likely to be a corrective up move rather than the start of a bullish impulsive upleg sequence. The move seems to be evolving in corrective zig zag sequence, labelled as “a-b-c-x-a-b-c” with the end of movement confluences with a Fibonacci retracement/projection cluster at 0.7660/7670 (61.8% retracement of the down move from 19 Apr 2018 high to 09 May 2018 low & 1.00 projection of the up move from 09 May low to 22 May 2018 minor high projected from 30 May 2018 minor low). These observations highlight the risk of the end of the on-going corrective up move and the pair may start to shape another potential bearish impulsive downleg sequence at this juncture (see 1 hour chart).
  • Momentum readings suggest an overstretched up move where the daily RSI oscillator is now testing a correspond resistance at the 53 level with the shorter-term hourly RSI that has just exited from its overbought region.

Key Levels (1 to 3 days)

Intermediate resistance: 0.7670

Pivot (key resistance): 0.7690

Supports: 0.7600/7585 & 0.7515

Next resistance: 0.7800

Conclusion

The AUD/USD faces the risk of at least a short-term mean reversion decline at this juncture. Therefore as long as the 0.7690 pivotal resistance is not surpassed, the pair may see a decline to test the intermediate support at 0.7600/7585 (the former minor high areas of 22/31 May 2018) and breaking below 0.7585 opens up scope for a further potential push down to target the next intermediate resistance at 0.7515 (the minor swing low of 01 Jun 2018 & the lower boundary of the minor ascending channel from 09 May 2018 low).

On the other hand, a clearance above 0.7690 invalidates the bearish scenario for a further squeeze up towards the next resistance at 0.7800 (medium-term swing high of 13/19 Apr 2018 & close to 50% Fibonacci retracement of the entire down move from 26 Jan 2018 high to  09 May 2018 low).

Charts are from eSignal




Join our live webinars for the latest analysis and trading ideas. Register now

GAIN Capital UK Limited (trading as “City Index”) is an execution-only service provider. This material, whether or not it states any opinions, is for general information purposes only and it does not take into account your personal circumstances or objectives. This material has been prepared using the thoughts and opinions of the author and these may change. However, City Index does not plan to provide further updates to any material once published and it is not under any obligation to keep this material up to date. This material is short term in nature and may only relate to facts and circumstances existing at a specific time or day. Nothing in this material is (or should be considered to be) financial, investment, legal, tax or other advice and no reliance should be placed on it.

No opinion given in this material constitutes a recommendation by City Index or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person. The material has not been prepared in accordance with legal requirements designed to promote the independence of investment research. Although City Index is not specifically prevented from dealing before providing this material, City Index does not seek to take advantage of the material prior to its dissemination. This material is not intended for distribution to, or use by, any person in any country or jurisdiction where such distribution or use would be contrary to local law or regulation.

For further details see our full non-independent research disclaimer and quarterly summary.