Elliott Wave Analysis: AUD/USD on Wave 5

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Elliott Wave Analysis: AUD/USD on Wave 5

Thanks to the run in risk aversion and weak data from China recently, AUD/USD is showing momentum in completing the fifth wave of its basic Elliott Wave pattern on the longer-term time frames.

On its daily chart, AUD/USD has completed a retracement to the 38.2% Fibonacci level on the latest swing high and low from .9770 to .8660. This coincides with a falling trend line and forms the last wave of the primary impulse wave pattern.

With that, AUD/USD might be on its way to test its previous lows around .8660 and possibly find a bit of support there in the near term. A break of these lows could mean an extension of Wave 5 to new lows, possibly around the .8500 major psychological level. 

From there, a corrective wave pattern might take place, with the first Wave A retesting the .9000 major psychological resistance. Of course, this depends on how market sentiment fares and it appears that risk-taking is weak for now. This was sparked by geopolitical conflict in Ukraine, with Russia announcing its deployment of military troops to take over Crimea.

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AUD/USD Downtrend Continuation

Technical indicators on AUD/USD’s longer-term time frames, such as the weekly and daily charts, are suggesting a continuation of the downtrend. Stochastic (14,3,3) is moving down from the overbought zone on the daily chart, indicating that Aussie bears have found enough momentum to push the pair lower in the coming days.

RSI and ADX are also reflecting a trending market environment, wherein the path of least resistance is downwards. This confirms that AUD/USD is ready to complete the last wave of its impulse pattern and using the Fibonacci extension on the latest pullback could reveal how low the pair could go.

To contact the reporter of this story: Jonathan Millet at john@forexminute.com