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Australian dollar technical outlook: rally could stall

AUD/USD’s recent rally could take a breather; the rebound since October appears to be corrective so far and what is the outlook and what are the key levels to watch?

Source: Bloomberg

AUD/USD short-term technical forecast - neutral

The Australian dollar’s rally against the US dollar could take a breather as it has run into a stiff hurdle, including a downtrend line from April, the 89-day moving average, and the July low of 0.6685. The pair was last above the moving average in April.

AUD/USD daily chart

So, a break above could be important, potentially opening the way toward the August high of 0.7135, though the price objective of a minor inverse Head & Shoulders (H&S) pattern triggered earlier this month points to a potential rise toward 0.6900 (the left shoulder is at the September low, the head is at the October low, and the right shoulder is at the early-November low).

Source: TradingView

AUD/USD 12-minutes Chart

Moreover, the sharp rebound in price in recent weeks wasn’t enough to trigger a major rebound in momentum on the weekly charts. The 14-week Relative Strength Index (RSI) continues to stay below the 50 mark. Previous rallies in AUD/USD stalled when RSI was close to 50 (see weekly chart). This suggests the rebound from last month may be no different from the previous corrections. That is, there isn’t much evidence yet to suggest the five-weeks-long rally is a trend reversal.

Source: TradingView

AUD/USD weekly chart

AUD/USD is now testing key support at Thursday’s low of 0.6630. Any break below could open the way toward a horizontal trend line from the end of September, at about 0.6520, coinciding with the 200-period moving average on the 120-minute chart.

AUD/USD could try to find a floor near here. However, any break below could open the door toward the November 10 low of 0.6390, which could be tough support to break.

Source: TradingView

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This information has been prepared by IG, a trading name of IG Australia Pty Ltd. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients.

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