Australian Dollar Talking Points:
- After becoming one of the weakest currencies in the world in November the Australian Dollar has shown signs of recovery so far in December.
- AUD/JPY remains in a bearish technical scenario but the fundamental side may be shifting to a more bullish backdrop. If the tech side of the equation can hold support at a key spot, technical and fundamental themes may align more attractively, and this could take place over the next couple of days.
- The analysis contained in article relies on price action and chart formations. To learn more about price action or chart patterns, check out our DailyFX Education section.
AUD/USD has seen momentum shift over the past two weeks, from decisively bearish to very bullish and it appears that we’re at an important inflection point that will decide that next trend.
Coming into November the pair had a full head of steam, trading above the .7500 psychological level. But that theme soon started to turn and by November 5th, there was the potential for a bearish move to develop.
Less than a week later, a bear flag appeared, and as I pointed out, prices had started to test a key area of support around the .7290-.7317 area, and this may be coming back into play at some point near-term.
By late-November, bears had breached the bear flag and pushed prices down to the .7100 handle. As I had mentioned, support around the .7000 psychological level was nearing and given how oversold the pair was at the time, the door began to open for a pullback. That price came into play in early-December and, so far, that’s marking the 2021 low in AUD/USD.
At this stage, AUD/USD finds itself at a possible inflection point, around the 38.2% marker of that recent sell-off. The daily bar is currently showing as a spinning top, indicative of indecision which can possibly begin to open the door to bearish continuation scenarios should it close in this manner. But – if buyers are able to support the bid and should prices close above resistance around the .7200 handle, then the door remains open to continued topside run, with focus on .7275-.7300 for that next spot of possible resistance.
AUD/USD Daily Price Chart
Chart prepared by James Stanley; AUDUSD on Tradingview
For Bullish Aussie Plays – Follow AUD/JPY
As I’ve been discussing of late regarding the British Pound: For traders that do want to look at the long side of GBP or AUD, the prospect of meshing that currency up with what’s been a really strong US Dollar can make for a daunting prospect.
But – if we are seeing a legitimate revival of the risk-on move across FX, which could support the topside of both GBP and AUD, the Japanese Yen may be a much more attractive counterpart. And, at this point, AUD/JPY may have a bullish backdrop to work with depending on how today’s daily bar closes.
From a near-term perspective and taken from the four-hour chart below, there’s a big level around 81.50 that would need to be held to keep this door open for bullish potential. There’s also a rising wedge formation that’s developed off of support, which is now a double bottom formation, taken from the 78.85 level on the chart.
So, from a technical perspective, this would be bearish at the moment, combining a rising wedge after a test of double bottom support.
From a fundamental perspective, the long side could be attractive but the technical setup would need to match that bullish potential. So – the way that this can happen is with a hold of support around the 38.2% Fibonacci retracement of the recent bullish move along with the 81.48 level which is the 50% marker of the 2007-2008 major move.
If support can hold in this zone, the next step would be invalidation of the wedge, at which point topside targets can open at the psychological level of 82.50 followed by 83.40.
AUD/JPY Eight-Hour Price Chart
Chart prepared by James Stanley; AUDJPY on Tradingview
--- Written by James Stanley, Senior Strategist for DailyFX.com
Contact and follow James on Twitter: @JStanleyFX
