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AUD/USD breaks to yearly high, but can buyers maintain?

After a two-year sell-off AUD/USD bulls have finally gotten back in the driver’s seat – but can they stay there?

AUD/USD sentiment, price and analysis

  • AUD/USD has set a fresh yearly high
  • IG client sentiment (IGCS) currently showing a bearish read from retail traders apparently trying to call a top

The Australian dollar is continuing the rally that started in March and, with some help from a weakening US dollar, was able to break out to a fresh yearly high. The .7000 level came into play in June and helped to hold buyers at bay; but with this week’s bullish breakout retail traders have increased their short positioning, keeping the door open for topside potential.

AUD/USD IG client sentiment

The current IGCS read for AUD/USD is showing a heavy imbalance on the short side as roughly 65.11% of retail traders holding positions in the pair are net-short. That short positioning has been steadily increasing since the third quarter (Q3) open, helped along by a weak US dollar pushing pairs like AUD/USD higher. As AUD/USD broke out beyond the .7000 level this week, setting a fresh yearly high along the way, retail traders have increased that short positioning while apparently trying to call a top in the pair.

We typically take a contrarian view to crowd sentiment, and given this bearish imbalance after a recent bullish breakout, further upside could be ahead.

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AUD/USD IGCS chart

AUD/USD technical outlook

Much has changed for the Aussie since the coronavirus pandemic has come into the equation, and this is fairly well illustrated in the AUD/USD major pair. After setting start on a downtrend in January of 2018, the pair gave up more than 2500 pips over the next two years. The month of March was especially volatile as AUD/USD pushed down to a fresh 17-year low, eventually finding buyers just above the .5500-handle. Since then, however, a far different tone has taken over as bulls have made a pronounced re-entry back into the situation, erasing the entirety of that early-2020 sell-off and then some.

The .7000 level was a big item of resistance when it came back into play in early-June; and this price held buyers back for more than a month as a bull pennant formation built in the pair. That led into this week’s breakout with a move up to a fresh yearly high, and given recent strength combined with the current IGCS outlay, the topside of AUD/USD can remain of interest in the days ahead.

AUD/USD daily price chart

This information has been prepared by IG, a trading name of IG US LLC. This material does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. You should not treat any opinion expressed in this material as a specific inducement to make any investment or follow any strategy, but only as an expression of opinion. This material does not consider your investment objectives, financial situation or needs and is not intended as recommendations appropriate for you. No representation or warranty is given as to the accuracy or completeness of the above information. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. Any research provided should be considered as promotional and was prepared in accordance with CFTC 1.71 and designed to promote the independence of investment research. See our Summary Conflicts Policy, available on our website.

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