Key Points:
- After some solid gains, the AUD may need to cool-off going ahead
- Overbought status is likely to exert some selling pressure
- Losses should be limited to the 0.7611 handle
After breaking through a zone of resistance that had presented a major obstacle to ongoing upsides, the AUD has reached yet another reversal zone that could see more moderate week moving forward. Indeed, losses may now be seen for the pair and that very zone of resistance that was giving us trouble at the start of the week could now represent a near-term cap on losses.
As shown below, this week’s solid effort on the bull’s part has pushed the AUD/USD above the zone of resistance identified at the start of the week and all the way up to the long-term declining trend line. As a result, it’s no small wonder that traders are beginning to grow weary of reversal for the pair in the coming sessions. The breaking of not one but two well tested resistance levels is not a overly common event – especially given the coincidence of a historical reversal point and a falling trend line around the 0.7716 handle.
What’s more, both stochastic and RSI readings are well and truly overbought which will be giving the bulls pause for thought. Combined with the degree to which the pair is challenging the upside Bollinger band, a tumble in the coming days is looking rather likely if it is not indeed already underway. Whilst not shown, candles on the shorter time frames are begin to suggest that a bearing engulfing is occurring which could mean that control of the pair is already being hand off to the bears.
Once a downtrend does take root, the Aussie dollar is expected to tumble back to around the 0.7611 mark. Here, a historic reversal zone and the 23.6% Fibonacci level should dampen the bear’s spirits and encourage yet another uptick in buying pressure. Importantly, the pair will have moved out of overbought territory by this stage which will leave it able to mount another attempt at breaking though the long-term trend line. Of course, whether or not it can actually breakout will need to be looked at closer to the time.
Overall, keep an eye on the Aussie dollar moving ahead as, whatever happens, it’s likely to be worth watching. Nevertheless, there is a fairly robust technical argument for a reversal which should be underway shortly. All this being said, don’t neglect the fundamental side of things as this could still lead to some upsets along the way.