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AUD Q4 2022 Technical Forecast: AUD/USD Falling Wedge and Inverse H&S in Focus

AUD Q4 2022 Technical Forecast: AUD/USD Falling Wedge and Inverse H&S in Focus

Thomas Westwater, Analyst
AUD Forecast
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Technical Outlook

Despite a strong start in July, the Australian Dollar fell against the US Dollar in August and September, extending the downward trend established in April when prices hit the highest level since June 2021 before selling off. AUD/USD closed out September with a loss of around 4% after the US Dollar surged against its major peers.

AUD/USD – Weekly Chart

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Chart created with TradingView

A mid-August rally stalled short of the June swing high, which validated a Falling Wedge pattern by providing its resistance line with a second reaction high. Prices ended September at wedge support. The Falling Wedge is a bullish pattern, sometimes leading to a breakout once prices breach resistance. While the quarter ended with prices threatening support, a bullish divergence in the Relative Strength Index (RSI) is an encouraging development for the outlook.

Zooming to the monthly timeframe brings an Inverse Head and Shoulders pattern into view. The pattern is incomplete until the right shoulder forms and prices break the neckline. A fourth quarter rebound would form the right shoulder, but the distance to the neckline is unlikely to fill before Jan. Still, the pattern offers an enticing chance for Aussie Dollar bulls to mount a decisive reversal.

Alternatively, prices may continue falling. That would threaten a support zone defined by the 2008 and 2009 lows, which underpinned prices back in 2020. The 0.600 psychological level provides another layer of support towards the bottom of the support range, something that may help to stem a deeper selloff and protect prices from hitting levels last traded at in the early 2000s. Overall, the AUD/USD outlook tilts bearish when considering the preceding downtrend, hence the phrase "the trend is your friend."

AUD/USD - Monthly Chart

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Chart created with TradingView

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