The Australian dollar has performed beautifully so far this week.
I mentioned this ascending channel on March 28th and again in Saturday’s weekly forex forecast, which AUDUSD is so far respecting perfectly.
If we contextualize this channel with the downtrend that began in February, it looks like a bear flag pattern.
However, as mentioned last week, we can’t call it a bear flag without a higher time frame close below channel support.
Until then, it’s simply an equidistant channel.
You may have noticed how AUDUSD has “hinged” around 0.6725 this week, a level also discussed on Saturday.
If today’s session closes below 0.6725, we may have a minor bearish fakeout to work with.
But this channel support near 0.6690 is the level to watch for a possible trend continuation.
Remember, too, that the Australian dollar is positively correlated to equities.
So studying a chart like the S&P 500 (SPX500) can be beneficial when trading AUDUSD.
The SPX500 reclaimed a significant area last Friday between 4,070 and 4,090.
You can see how this area served as range support in February.
So a daily close back below 4,070 this week would confirm a bearish fakeout and expose levels like 4,000.
Given the positive correlation between the two, that level of weakness from the S&P 500 would drag AUDUSD lower.
However, the S&P is holding above support for now, so it’s premature to discuss a breakdown from equities.
But if this 4,070 area fails and we get a sustained break below 0.6690, it would open up lower levels like 0.6580 and 0.6525.
