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AUDUSD: The Next Domino to Fall

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Yesterday I commented on the NZDUSD selloff that triggered when the pair closed below channel support that extends from the May low at 0.6675. The economic update released by the RBNZ early in today’s session gave rise to additional concern about the kiwi’s lofty prices, which helped the pair shed another 70 pips.

Daily correlation for AUDUSD and NZDUSDAs you may well know, the Australian dollar and New Zealand dollar share a common bond. As such, the two currencies often move in tandem. And at a 92.2% positive correlation on a daily closing basis, that relationship is currently stronger than it’s been in quite some time.

This increase in correlation signals that the recent breakdown in the NZDUSD could soon spill over to its Aussie counterpart. In fact, over the weekend I mentioned the bearish engulfing pattern on AUDUSD that triggered this week’s 140 pip drop.

But even if the two currency pairs weren’t correlated, the price structure on the AUDUSD would still interest me. And while the more immediate trend line that extends from the May low at 0.7145 (second chart) is intriguing, there is a larger opportunity that’s been brewing since the January low at 0.6825.

AUDUSD ascending channel on the daily chart

The broad structure above combined with the intraday trend line below could present an opportunity to pyramid on the way down. Of course, we first need to see a close below the 4-hour trend line to help confirm that sellers remain in control.

A move lower would first encounter bids at the six-month channel support near 0.7330. A close below that would expose the May low at 0.7145 with a break there opening the door to a much larger move toward multi-year lows at 0.6825.

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AUDUSD intraday trend line support

Leave a Comment:

14 comments
James Turcinov says

Excellent Review Justin. Really appreciate the input into each pair on your website.

Reply
    Justin Bennett says

    Thanks, James. Glad to be of help.

    Reply
luv says

THAT WILL DEPEND,,,, IF DOSENT CLOSE BELOW IT THEN THE PAIR MIGHT MOVE TOWARDS 0.7652

Reply
    Justin Bennett says

    Right, which is why I made mention of that in the post… “Of course, we first need to see a close below the 4-hour trend line to help confirm that sellers remain in control.”

    Thanks for your comment.

    Reply
mark jackson says

Could , would , should ….terrible analysis…such guessing anyone can do.

Reply
    Justin Bennett says

    Mark, I do like those words because they symbolize the uncertainty that’s present in any market. To use the words “will” or “will not” would imply that a particular outcome is guaranteed, which we all know isn’t how this business works.

    And you’re right; everyone has the ability to do what I do, which is why I spend much of my day teaching others.

    Thanks for your comment.

    Reply
    Sam says

    I don’t know you, but in this financial markets. Those are the succinct words, anything other than those is blatant lie. The reason, no one of use is 100 percent certain and it shows the level of uncertainty involve in earning a living in this market. Thank your Just for your mature response.

    Reply
      Justin Bennett says

      Sam, I agree 100% and wouldn’t have it any other way. Thanks for stopping by.

      Reply
Lakeside says

Thanks for the head up. But if the dynamic support line is drawn one weekly TF, we’ll see that it has already broken the line. Thanks

Reply
    Justin Bennett says

    You’re welcome. I’m not sure which level you’re referring to, but you can’t technically “draw” a dynamic level.

    Reply
Shaon Bhuiyan says

I am already in with small volume and rest will be after a D1 Closing .

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Earl says

Justin, please ignore the comment from mark johnson. Anyone looking for forex market analysis with guarantees is not only ignorant, but foolish.

Reply
Waqas says

Good analysis Justin… You follow NY closings for your charting analysis? Because when you say we need to close below the 4h trendline… we also need to know which closings are you following for this analysis?

Reply
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