AUD/USD: The cleanest medium-term trend in FX?
Matt Weller, CFA, CMT July 18, 2018 12:37 PM
Amidst the second day of Fed Chairman Powell’s Humphrey-Hawkins testimony, disappointing UK inflation data, and a big rally in cryptoassets, the Australian dollar isn’t garnering too many headlines today....
Amidst the second day of Fed Chairman Powell’s Humphrey-Hawkins testimony, disappointing UK inflation data, and a big rally in cryptoassets, the Australian dollar isn’t garnering too many headlines today. That said, the pair is showing arguably the cleanest technical setup of all the majors and could therefore present strong trading opportunities, regardless of the day-to-day market noise.
As the chart below shows, the Aussie has been trending consistently lower against the greenback since its late January peak near 0.8100. The textbook definition of a downtrend is a series of lower highs and lower lows, and AUD/USD has put in no fewer than five lower highs and lows since topping out nearly six months ago. Over that period, the pair has formed a clear bearish channel that provides clear levels of support and resistance to watch.
Source: TradingView, FOREX.com
For the last month, rates have been moving generally sideways between previous-support-turned-resistance around 0.7480 and the 18-month low from early July at 0.7310. With the longer-term bearish channel approaching the top of that range, a break lower from the recent consolidation zone (perhaps to test the 2016 lows around 0.7200) is more likely than not.
Of course, the confluence of multiple levels of resistance near 0.7500 also means that a conclusive break above that barrier would give traders more confidence than usual that a significant bottom has formed. In that case, AUD/USD could easily rally toward 0.7600 or the June high at 0.7680 before encountering further resistance.
Looking at the upcoming fundamental data, AUD/USD traders should keep a close eye on the Australian CPI report (next Wednesday’s Asian session) along with Friday’s US Advance GDP reading as possible catalysts for increased volatility.
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