Despite a recent rate cut by the Reserve Bank of Australia, the AUD/USD has been bullish since a double bottom in April from 0.7533. The prospect of another rate cut is very low, so the RBA’s monetary policy stance is shifting away from the dovish end. With the FOMC delaying its rate hike, its not surprising to see AUD/USD in a significant bullish correction. First let’s take a look at the 4H chart where there is a triangle pattern. Then we will look at the rice bottom forming in the daily chart.
The 4H chart shows AUD/USD forming a triangle consolidation pattern, but with bullish bias as price trades above the 200-, 100-, and 50-period SMAs, which are sloping up and in bullish alignment. Also, the fact that the RSI has held above 40 shows maintenance of the prevailing bullish momentum in the short-term. A break above 0.80 would be a triangle breakout and signal bullish continuation not only towards the 0.8075 April-high, but towards the next key support/resistance pivot area around 0.8215 as we can see in the daily chart.
The daily chart shows a market that has lost its bearish bias as price crossed above the 100- and 50-day SMAs and then tested them as support. The RSI is also above 60, which reflects loss of the bearish momentum. Also, note that when price bounced off 0.7715, it respected a double bottom formed in the first half of April.
So, the bias is definitely bullish, and a triangle breakout would pt pressure towards the 0.8215 support/resistance pivot, with risk of extending towards 0.83-0.8350, which involves a previous resistance and the 200-day SMA.
While we should be prepared for further bullish extension in the short-term, let’s not forget that the FOMC is still more hawkish than the RBA, and therefore, we should keep a bearish bias in the medium-term. This is why I think we should limit the bullish outlook to 0.83, with a conservative target to 0.8215.
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