Australian Dollar Forecast: Bull Flag, Bullish Wedge Taking Shape in AUD/JPY, AUD/USD?
Australian Dollar Outlook:
- Both AUD/JPY and AUD/USD have seen their multi-month uptrend slow in recent weeks, but that doesn’t mean that there isn’t more fuel left in the tank for gains. A bull flag in AUD/JPY rates and a bullish falling wedge in AUD/USD rates suggest that more upside is possible soon.
- The forex economic calendar for the coming week is devoid of significant Australian economic data, putting the onus on American and Chinese data to guide the major AUD-crosses.
- According to the IG Client Sentiment Index, both AUD/JPY and AUD/USD rates have a mixed bias in the near-term.
Australian Dollar Holding its Own
The Australian Dollar typically follows risk trends, and with global equity markets trading choppily in recent weeks around volatility in global bond yields, the antipodean currency has been able to make much progress with respect to its multi-month uptrend. And while both major AUD-crosses, AUD/JPY and AUD/USD, have seen their gains slow, that doesn’t mean that there isn’t more fuel left in the tank for further gains. Indeed, with a bull flag forming AUD/JPY rates and a bullish falling wedge forming in AUD/USD rates, the major AUD-crosses may soon turn higher.
AUD/USD RATE TECHNICAL ANALYSIS: DAILY CHART (March 2020 to March 2021) (CHART 1)
AUD/USD’s uptrend from the March and November 2020 lows remains impaired, with the mid-March attempt higher failing to recapture the key trendline. But hope springs eternal: it may be the case that a bullish falling wedge is taking shape on the daily timeframe, with support drawn from the early-January high and early-March low, and resistance drawn from the late-February high and mid-March high.
If this is the correct interpretation of price action, a breach of resistance coinciding with AUD/USD trading above its daily 21-EMA would be a necessary precursor before any confidence in the bullish falling wedge is validated. For what it’s worth, AUD/USD may continue to underperform AUD/JPY in an environment that remains appealing (from a technical perspective) for the US Dollar.
IG Client Sentiment Index: AUD/USD RATE Forecast (March 29, 2021) (Chart 2)
AUD/USD: Retail trader data shows 54.98% of traders are net-long with the ratio of traders long to short at 1.22 to 1. The number of traders net-long is 8.29% higher than yesterday and 11.15% higher from last week, while the number of traders net-short is 16.37% higher than yesterday and 2.74% lower from last week.
We typically take a contrarian view to crowd sentiment, and the fact traders are net-long suggests AUD/USD prices may continue to fall.
Positioning is less net-long than yesterday but more net-long from last week. The combination of current sentiment and recent changes gives us a further mixed AUD/USD trading bias.
AUD/JPY RATE TECHNICAL ANALYSIS: DAILY CHART (March 2020 to March 2021) (CHART 3)
In the prior AUD/JPY forecast update on March 18, it was noted that “AUD/JPY rates are working on a daily bearish hammer, not quite a bearish key reversal just yet. Still above its daily EMA envelope, it’s too early to say that this is the top.” The March 17 proved to be the high for the month of March, although by-and-large the pair remains in the confines of the February 25 high/February 26 low range.
With AUD/JPY still maintaining its uptrend from the March and November 2020 lows (unlike its AUD/USD brethren), the pair appears to be in the midst of a sideways consolidation, which in context of the preceding move, looks like a bull flag. More gains may be coming soon; a lost of the February 26 low at 81.98 would invalidate the nascent bullish perspective.
IG Client Sentiment Index: AUD/JPY Rate Forecast (March 29, 2021) (Chart 4)
AUD/JPY: Retail trader data shows 38.84% of traders are net-long with the ratio of traders short to long at 1.57 to 1. The number of traders net-long is 16.05% higher than yesterday and 3.09% lower from last week, while the number of traders net-short is 7.64% higher than yesterday and 0.34% lower from last week.
We typically take a contrarian view to crowd sentiment, and the fact traders are net-short suggests AUD/JPY prices may continue to rise.
Positioning is less net-short than yesterday but more net-short from last week. The combination of current sentiment and recent changes gives us a further mixed AUD/JPY trading bias.
--- Written by Christopher Vecchio, CFA, Senior Currency Strategist
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