Australian dollar technical outlook: rally could stall

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).

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.

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.

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