AUD/USD, AUD/CAD Key Chart Patterns. Are Breakdowns Looming?

2021-01-31 04:00:00 Thomas Westwater, Analyst

AUSTRALIAN DOLLAR TECHNICAL FORECAST: BEARISH

AUD/USD breakdown may occur after retesting broken support level
AUD/CAD aims lower after rejection at Descending Triangle resistance

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AUD/USD Technical Forecast: Bearish

The Australian Dollar’s technical posture has deteriorated considerably against the US Dollar and may be on course to weaken further.AUD/USD descended through a support line formed by the bottom of aSymmetrical Triangle last week, with a subsequent drop to the 61.8% Fibonacci retracement level.

Prices retraced higher but strength tapered off at the 38.2% Fib level, which sits just abovethe triangle’s lower bound. The pair then turned lower. The rejection turns support into resistance and lends a degree of validation to the bearish reversal signal. AUD/USD now appears poised for further losses, with the 61.8% Fib level possibly serving as a price target for sellers.

However, an extension lower – perhaps to the 78.6% Fib – may take place if last week’s low gives out. Intermediate support via the 50-day Simple Moving Average is a possible point of price contention. Another outcome would be a move back above the triangle's trendline, invalidating the reversal signal in turn. On balance, a bearish near-term outlook seems to be the most probable path forward.

AUD/USD 4-Hour Chart

Chart created with TradingView

AUD/CAD Technical Forecast: Bearish

The Australian Dollar is in a more neutral stance against its Canadian namesake, although a slight bearish bias exists as a Descending Trianglepattern sets up a possible reversal. Prices have dragged lower over the last few weeks, putting in a series of lower highs to form the downward sloping trendline.

The latest swing high formed after the pair rallied from the triangle's horizontal support. AUD/CAD is now attempting to break to the downside to open the door for another test of key support and a potential longer-lasting selloff. The 20-day SMA and 23.6% Fibonacci retracement – both anterior to the horizontal trendline – may supply potential support levels.

Overall, a bearish outlook appears to be the likely avenue in the short term. The alternate case, while less likely, would see prices climb and surmount resistance, giving way to the longer-term trend. Waiting for an exit from the Triangle pattern seems like a prudent approach, all things considered. The 38.2% Fib level along with channel support from the October 2020 swing low may be likely price targets if a breakdown does occur.