Key Points:
- Price action constrained within a tightening wedge formation.
- RSI Oscillator nearing oversold levels.
- Watch for a move back above 0.7600 before a recommencement of the down trend.
The Aussie Dollar has had a relatively rough week to date as the pair has reacted to a range of wildly swinging sentiment around the USD, as well as a disappointing CPI result. This has provided the conditions for a fairly steady depreciation which has seen price action currently trading around the 0.7519 mark. However, despite the pair’s relatively clear corrective structure (4-hr timeframe) there are some indications that we might be seeing the early stages of a turnaround.
Fundamentally, it was always going to be a rough week for the commodity exposed pair given the machinations exiting the Trump white house. It was therefore no surprise that the announcement of a new corporate tax plan would boost the greenback’s sentiment. Additionally, the market was also looking for a relatively strong Australian inflation result, yet instead they received a slip to 0.5% q/q. So the fundamental downside pressure was always going to arrive. However, it would appear that the defining factors are likely to be technical in nature over the next 24 hours.
In particular, a cursory review of the charts clearly shows the rising trend line that is currently supporting price action. Subsequently, the lows are getting higher in a sign that should provide plenty of comfort to the bulls. Additionally, both the RSI Oscillator and the ADX are plumbing relatively low levels, with the RSI nearing oversold territory.
Subsequently, there are plenty of reasons to suspect that the Aussie Dollar is about to rally especially considering that, between the higher lows and lower highs we have a wedge formation in play. Given the aforementioned factors, we are likely to see a short term move back towards the 0.7630 mark. However, it is likely that this level could prove a turning point and lead to a continuation move to recommence the depreciation against the greenback.
Ultimately, any upside move is likely to only be a short term one before the pair recommences its steady decline. The technical indicators are relatively clear in the short term given the squeezing that is currently occurring. Subsequently, keep a keen eye out for a break above the top of the constraining wedge as this is likely to signal the start of the short term move back above the 0.76 handle and towards the 0.7630 mark.
