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Australian dollar technical forecast: AUD/USD plunges to pivotal support

AUD/USD plunges back towards downtrend support US post-CPI release and Aussie resistance 6930s, 6991-7016 (key) 7139- Support 6621/70 (critical), 6461, 6196.

The Australian dollar plunged more than 2.2% against the US dollar on the heels of a hotter than expected US inflation read with AUD/USD now approaching multi-year downtrend support. We’re looking for possible price inflection here with a break lower threatening an even sharper Aussie sell-off. These are the updated targets and invalidation levels that matter on the AUD/USD weekly technical chart.

Australian dollar price chart – AUD/USD weekly

In our July, AUD/USD Technical Forecast we highlighted that that AUD/USD had rebounded off the lower parallel of this multi-year descending pitchfork formation – that recovery failed into the median-line / August 2021 low-week close at 7138 last month before reversing sharply with the decline now once again approaching the lower parallel. It’s decision time for the Aussie bears.

A break below this slope exposes a key support pivot at 6621/70- a region defined by the 100% extension of the 2021 decline , the 2008 low-week close and the 2019 low. Ultimately, a close below this threshold would be needed to fuel the next leg lower in price towards the 61.8% Fibonacci retracement of the entire 2020 rally at 6461. Initial weekly resistance is eyed at the 25% parallel (currently ~6930s) backed by the November 2020 low / 2020 yearly open at 6991-7016.

Broader bearish invalidation now lowered to the 52-week moving average which converges on the median-line around 7139.

Bottom line: The Australian dollar is approaching multi-year downtrend support and we’re looking for a reaction in price on a stretch towards the lower parallel – watch the weekly close. From a trading standpoint, rallies should be capped by the monthly open at 6840 if price is indeed heading lower with a close below 6621 needed to fuel the next major-leg lower in price.

Australian dollar trader sentiment – AUD/USD price chart

Summary

  • A summary of IG Client Sentiment shows traders are net-long AUD/USD - the ratio stands at +2.43 (70.85% of traders are long) – typically bearish reading
  • Long positions are 2.41% higher than yesterday and 18.31% lower from last week
  • Short positions are26.43% lower than yesterday and 19.54% 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. Traders are further net-long than yesterday and last week, and the combination of current positioning and recent changes gives us a stronger AUD/USD-bearish contrarian trading bias from a sentiment standpoint.

Australia / US economic calendar

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The information 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 Bank S.A. 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 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. See full non-independent research disclaimer.

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