The AUDUSD lost significant ground yesterday. After closing back above the 0.7320 area on Monday and beginning to look quite bullish, sellers erased 100 pips in just 24 hours on Thursday.
As I type this, the pair is hovering just below 0.7320. Whether the area is more significant this time around is anyone’s guess, so we’ll need to wait and see.
I would caution against selling the AUDUSD though. Despite a downtrend that has consumed most of 2018 so far, there is a falling wedge that has developed over the past few months.
I mentioned this pattern in Sunday’s forecast. If it is indeed a falling wedge and buyers can clear resistance near 0.7370, it could put an end to this short-term downtrend, at least temporarily.
A daily close above wedge resistance would expose the 0.7460/70 horizontal area. A break above that would extend the AUDUSD all the way to the June high at 0.7660/70.
Note that the 0.7660/70 area is also the 50% retracement of the year to date range. The high of that range is 0.8135 while the low was put in earlier this month at 0.7202.
That said, buyers have their work cut out for them. Before they can even think about 0.7460/70 or 0.7660/70, they need to clear falling wedge resistance on a daily closing basis (New York 5 pm EST).
They also need to get past 0.7320 if it is indeed a key level as the July lows would suggest.
Any downside pressure will likely remain capped by what is now a confluence of support near 0.7200. That’s the intersection of wedge support and the year to date low.
In summary, the AUDUSD is neither a buy or sell for me at the moment, but the narrowing downtrend since May is indicative of an imminent bounce.