The Australian dollar has had a relatively positive week as the pair rallied strongly due to an increase in global iron ore prices. However, the Aussie dollar has now moved near to resistance that could see it pull back in the coming session.
Iron ore prices have been a significant factor in the decline of the Australian economy over the past twelve months. The end of the commodity super cycle has had some sharp economic impacts for Australian trade receipts, with the collapse in iron ore prices being a critical component.
Ultimately, this has led to some downward pressures on both the domestic economy, as well as employment within the mining industry. In response, the Reserve Bank of Australia was quick to employ monetary easing to both stimulate demand whilst also subsequently depreciating the AUD.
Since August of 2015, the Aussie dollar appeared to have largely discovered its new equilibrium level with price action ranging strongly within a long term consolidation channel. However, buoyed by the increase in iron ore prices, the AUD moved to breach the top of the channel and to form a new high throughout the early part of March. However, despite a new high being formed, the technical indicators could be signalling some trouble ahead for the Aussie dollar, as the bears wake up from their winter hibernation.
Taking a look at the technical indicators provides some curious signals for the venerable pair. It would appear that a short term bullish channel has formed which has been capping much of the upside gains. However, price action appears to have just reached the top of the channel and failed a penetration attempt. Subsequently, a sharp retracement to the bottom of the channel in the coming days is likely.
In addition, the RSI oscillator is also signalling selling ahead as the pair starts to retreat out of overbought territory. In fact, there is a strong form of bearish divergence being exhibited by the oscillator which is likely pointing to a retracement looming upon the horizon.
Subsequently, watch the pair closely in the coming days as the pressure is building for a pull back from the top of the channel. Following the immediate correction, expect to see a short term bounce at 0.7382 before a recommencement of the bearish trend. However, keep a close watch on the pending US Unemployment Claims figures, as they could spoil the party.