Technical Sentiment: Bearish
- AUD was heavily bought during the Asian and European sessions after New Home Sales increased 2.9%,
- AUD/USD reached a pivotal point at around 0.9312/16;
- Preliminary US GDP, Unemployment and Pending Home Sales will decide if these gains will be reversed or not.
AUD/USD failed to complete an uptrend reversal, bouncing from the key support area once again. The market seemed prone to test and break the 0.9200 handle this time around, but it couldn’t seal the deal as new home sales in Australia rose more than anticipated. It is up to the US Dollar next to reverse these gains or cave in. As usual, the market has reached a perfect pivotal location ahead of the upcoming US data.
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Today’s 100 pip rally lifted AUD/USD from the support area straight into a major resistance confluence. On a larger scale, this move spells indecision for the major trend as the pair remains stuck in a fairly tight trading range since April 2014.
The immediate resistance is located around 0.9316. This line has represented a well respected pivot point. Additionally, it is backed up by the 100 and 200 Simple Moving Averages on the 4H time frame. If US strength continues to fade during the US session, which would happen on disappointing Unemployment and Pending Home Sales, then AUD/USD will rally above this pivot. Secondary resistance is marked by the bearish trendline based on the Daily highs, followed by 14th May High at 0.9408.
It should also be noted that today’s Daily bar is currently a bullish engulfing price action pattern. If the Daily bar ends with a strong close above 0.9300, a bullish continuation will be favored on Friday.
Failure to break above the pivot zone will lead AUD/USD to pull back towards the 0.9200 support, or enter a consolidation pattern between 0.9251 and 0.9316. The velocity of the drop would determine which outcome is more likely, with a fast descent favoring the return of the US bulls.
Trend traders will have to wait for a definitive break-out: the uptrend is set to continue on a break above 0.9408 (invalidating the recent Lower Highs on the Daily time frame); while below 0.9200 the trend reverses completely, opening the way towards 0.9000 in the short-medium term.
Prepared by Alexandru Z., Chief Currency Strategist at Capital Trust Markets