The U.S. Dollar Has Been Checkmated By The Australians

by: Sandeep Singh Ahluwalia

Technicals currently support the notion that a bullish rise is on the cards for the Australian dollar.

On 4th June, the Australian dollar breached the 61.8%, 78.6% and 100% Fibonacci resistance levels.

The pair's value will extend to the A$0.7737 price level.

The AUD/USD currency pair ended the last week of May on a flat note. But this week the pair has managed to recover itself, as it commenced the month of June on a very sturdy note. This resulted in the duo breaking out from a box range pattern that it has been trading in for the last 10 days of May.

Thus, in this article I will look at the probability of the Australian dollar having a bullish continuation from the current point, as I expect it to rise until the A$0.7737 mark. If it does so then investors will have the opportunity to book profits on the upward trajectory. To ascertain this likelihood, I will look at the fundamental news affecting the pair while also analyzing the charts using technical analysis tools.

Fundamental news for pair:

  • US CPI and Employment figures:
    • In the last few days, the US inflation and employment statistics were released which were in line with what the market analysts had already expected. The jobs sector statistics were positive, as the unemployment level fell to an 18-year low of 3.8%.
    • Furthermore, the inflation data was also in line with analysts' forecasts as the consumer price index rose by 0.2% while the anticipated rise was 0.3%. Thus, this was neither a shocker for the market or the Federal Reserve.
  • US and China tensions:
    • Tensions between US and China were revived after President Trump said that he was dissatisfied with the progress of ongoing negotiations. Thus, I am confident that this will be a dragging point for the pair, as China is a key trade partner of the Australian Economy. But I believe these tensions will affect the US dollar's value in a greater way, as the level of trade between these two nations is substantial.
    • In the coming week, China will be releasing its trade figures for May in which analysts expect its import and export levels to decline. However, these statistics are not expected to cause any negative surprises as they have been already factored into the price by the market.

Technical Analysis of the Equity:

AUD/USD Daily Chart On the daily chart, the pair has provided investors with three indications of a bullish rise. The first indication appeared last Wednesday when the pair formed a candle that could be classified as bullish outside day candle and a bullish engulfing candle. This in turn greatly improved the prospects of a bullish ascent. The second indication appeared on Friday last week when there was the formation of a dragonfly doji candle, which formed at the top end of the box range which signaled to investors that the trend is now unquestionably bullish. The third indication came when a bullish candle formed on Monday this week. This third indication helped the Australian dollar make a bullish breakout from the box range it has been trading in for the past ten sessions. Moreover, the current candle has taken support from the 50% Fibonacci level at A$0.7570.

On the moving average front, the pair has partially breached through the 50-day moving average with the current bullish candle thus signaling the strength of the current trend. Additionally, the 50-day MA has shed its bearish bias as it is no longer sloping upwards and the pair also seems to have found acceptance above this key moving average. Furthermore, two ADX settings have perched around the same level thus confirming that a bullish rise is on the cards.

AUD/USD Weekly Chart On the weekly chart, the pair has been trading in a box range format for the prior five weeks but now it has broken out of this configuration. Last week there was the formation of a hammer candle, which denoted to investors that this was the last burst of selling as new buying had just commenced. Additionally, this rejection of lower prices indicated a change in the balance between the bulls and the bears. The net result of this is the lessening of the bears' confidence in sustaining the lower price levels. This candle received a further bullish confirmation in the current session as there has been the formation of a large bullish candle that has broken out of the weekly box range. This in turn gives further confirmation to investors that the trend is now bullish in nature. Moreover, the pair has encompassed the short-term exponential moving averages thus signifying that a strong bullish move is on the cards. Furthermore, the RSI index is also steeply ascending and has breached the 50 mark thus supporting the notion that a strong bullish ascent is going to occur.

AUD/USD Resistance Daily Chart On the resistance facet, the pair has breached the 61.8%, 78.6% and 100% Fibonacci levels with the current bullish candle. I expect the Australian dollar to extend until the 161.8% Fibonacci level which is at A$0.7737. Moreover, I do not expect the pair to be able to breach this level because by the time it reaches the said level, the North Korea/U.S. summit will be around the corner, which will make the bulls very jittery.

The big picture:

Overall, I am leaning towards the bulls driving the Australian dollar's value higher, which will result in it extending to the 161.8% resistance level at A$ 0.7737. I state this as the technicals support an upward movement. However, whichever way you do decide to trade, make sure that you utilize a trigger price and a trailing stop as in the forex market, the tables can turn against you in the blink of an eye.

Good luck trading.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.