The Forex market has been relatively quiet, calm, and understated lately, with few currencies truly standing out. That said, the Australian Dollar is worth paying attention to. The Australian Dollar carries the highest interest rate of any major currency and has had one the most hawkish central bank in recent months, which has hiked the Cash Rate three times within months, although the Australian inflation outlook is showing some surprise to the downside. The US Dollar is the main driver of the Forex market and is prone to directional movement, although right now its central bank is hawkish, but its value is trading sideways. This currency pair is also in one of the strongest long-term trends you can find in the Forex market, especially in the majors.
This currency pair is particularly interesting at present because the more bullish price action in recent hours, and the weaker medium-term bullish trend, point towards a potential test later today of the $0.7200 area, which could be decisive.
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AUD/USD Technical Analysis
Looking at the price chart below on the AUD/USD currency pair, we can see evidence that the last two weeks or so have seen a slow and wide-ranging bullish trend. It is not especially strong, but it is there, as evidenced by the linear regression analysis which I have drawn within the price chart below. There is an ascending trend line which is not perfect, but which is mostly supporting the price action.
We see a strong and inflective bottom made during yesterday’s New York session at $0.7137. The price action now is running into an area of previously bearish price action and approaching key resistance at $0.7200. The previous action near this area is very bearish and suggestive of lots of sell orders waiting there.
I think we see the momentum in the Aussie (as the greenback is doing nothing) as strong enough to push the price up higher towards $0.7200.
That area is likely to be pivotal for today at least, and probably longer.
Watch Out for Bad News on Iran
The major risk in trading Forex currency pairs involving the US Dollar such as this one today is
any news suggesting that the kinetic war with Iran will reignite will tend to boost the US Dollar and hit risk sentiment, which can also send the Aussie lower
I believe this is highly unlikely after President Trump’s attempt last night to force a new ceasefire in Lebanon and Israel concurrent with an Iranian threat to resume the war, as it suggests President Trump is desperate for a deal and believes such a deal might be concluded soon.
A More Bullish Scenario
My analysis today is based an expectation that the area around $0.7200 is likely to hold, but a more bullish scenario might emerge where the price makes a strong bullish breakout to an area beyond that level. This would then clear the way for the price to rise to $0.7231 and challenge the 3.5-year high price in that area.
This might be driven by news that some kind of deal has finally been concluded between the USA and Iran.
My Take on AUD/USD
The best opportunity which is likely to arise today will be a short trade from a bearish rejection of $0.7200 or possibly the area just below that round number. I will have more confidence in a bearish reversal if the round number is touched by the price action.
If the price instead gets established above $0.7200, I will not want to look for a long trade as the long-term high at $0.7231 is not much further above. A scalper might try to exploit that breakout.
Review, Support & Resistance Levels
My previous AUD/USD signal on 14th May was not triggered.
Risk 0.25%.
Trades must be taken before 5pm London time Friday.
Short Trade Ideas
Short entry following a bearish price action reversal on the H1 time frame immediately upon the next touch of $0.7200 or $0.7231.
Put the stop loss 1 pip above the local swing high.
Move the stop loss to break even once the trade is 20 pips in profit.
Remove 50% of the position as profit when the price reaches 20 pips in profit and leave the remainder of the position to ride.
Long Trade Ideas
Long entry following a bullish price action reversal on the 1H1 time frame H1H1H1 time frame immediately upon the next touch of $0.7137 or $0.7127.
Put the stop loss 1 pip below the local swing low.
Move the stop loss to break even once the trade is 20 pips in profit.
Remove 50% of the position as profit when the price reaches 20 pips in profit and leave the remainder of the position to ride.
The best method to identify a classic “price action reversal” is for an hourly candle to close, such as a pin bar, a doji, an outside or even just an engulfing candle with a higher close. You can exploit these levels or zones by watching the price action that occurs at the given levels.
There is nothing of high importance scheduled today concerning the US Dollar. Regarding the Australian Dollar, there will be a release of GDP data at 2:30am London time.
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