AUD/USD Finds Support and Rallies Near May 16 High

Quick Look:

• AUD/USD Resilience: The pair approaches the May 16 high of 0.6714, showing strong support and potential for further gains.
• Short-Term Uptrend: Rising peaks and troughs since April 19 indicate a bullish trend, with key targets at 0.6728 and 0.6870.
• Measured Move Pattern: Completed pattern with potential for a minor correction, as indicated by RSI soft divergence on May 20.

The Australian dollar (AUD) against the US dollar (USD) has shown resilience, bouncing back to approach the May 16 high at 0.6714. This rebound highlights the currency pair’s strong support levels and potential for further gains. In the world of forex trading, understanding these movements is crucial for making informed decisions.

The Short-Term Uptrend: Peaks and Troughs

The AUD/USD pair is currently in a short-term uptrend, which is evident from the rising peaks and troughs on the four-hour chart since the April 19 lows. This pattern is a fundamental indicator that traders use to gauge market direction. The old adage “the trend is your friend” certainly holds here, suggesting that the uptrend might continue.

A break above the May 16 high would create a higher high, further confirming the extension of this uptrend. Such a development would be a strong bullish signal, encouraging traders to enter long positions. The immediate targets in this scenario would be 0.6728, a previous high, followed by 0.6870, an old resistance level. These levels serve as milestones where traders might expect some profit-taking or consolidation.

AUD/USD Hits 0.6714, Completes Measured Move Pattern

The AUD/USD pair recently completed a measured move pattern, which began at the April 19 lows and peaked at the May 16 highs. Measured moves are significant in technical analysis, consisting of three waves (A, B, and C). The expectation is that wave C will often match the length of wave A or align with a Fibonacci ratio of A. This pattern successfully reached its target when the pair hit 0.6714 on May 16.

The Relative Strength Index (RSI), a momentum indicator, was much lower at the May 20 high compared to the May 16 high. This discrepancy indicates a soft divergence, hinting at a potential pullback. Although the price hasn’t yet made a higher high on May 20, this soft divergence is a mildly bullish sign, suggesting that a minor correction could be on the horizon.

Key Levels to Watch: Support and Resistance

For traders, keeping an eye on specific support and resistance levels is crucial. A clear break below the 0.6649 level, which marks the May 17 lows, would signal a weakening trend. This level is critical because it represents the most recent support, and a break below it could indicate that the bullish momentum is fading.

More significantly, a decisive break below the red trendline on the four-hour chart would be a bearish signal. Such a break could denote a change in the short-term trend, especially if accompanied by a long red candle that closes near its low or three consecutive red candles breaking through the trendline. These patterns are strong indicators of a bearish shift, potentially prompting traders to consider short positions.

The AUD/USD pair’s recent movements underscore the importance of technical analysis in forex trading. By monitoring trends, patterns, and key indicators like RSI and support/resistance levels, traders can make more informed decisions. The current short-term uptrend suggests potential for further gains, but vigilance is necessary as market conditions can swiftly change.