AUD/USD Extends Bearish Reversal in Fakeout Fallout

AUD/USD OUTLOOK:

• AUD/USD extends pullback after failing to clear overhead resistance around the 100-day simple moving average
• The breakout that took place last week appears to have been a fakeout
• This article looks at AUD/USD’s key technical levels to watch in the coming trading sessions

AUD/USD TECHNICAL ANALYSIS

The Aussie embarked on a brief bull run against the U.S. dollar at the outset of the month, bouncing from horizontal support around the 0.6300 handle and breaking out on the topside. The initial rally gained strength late last week as the broader U.S. dollar began to correct lower following the FOMC decision and weaker-than-expected U.S. data, but prices hit a roadblock near the 100-day simple moving average on Monday, leading to a sharp reversal in the exchange rate (breakout looks like it was a fakeout).

AUD/USD’s retreat from technical resistance came in tandem with the Reserve Bank of Australia’s monetary policy announcement a couple of days ago. The central bank raised interest rates by 25 basis points to 4.35%, but sounded non-committal about further tightening, signaling that the rate-hiking cycle might be drawing to a close. The RBA’s cautious tone reinforced weakness in the Australian dollar, creating a more complex scenario for the Antipodean currency.

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Looking ahead, it is important to watch how prices behave/react around the 0.6400 mark, which coincides with the 50-day simple moving average. If this support zone crumbles, selling pressure could intensify in the near term, potentially leading to a drop towards 0.6350, the next floor in play. While AUD/USD may establish a base in this area during a retracement, a breakdown could open the door for a retest of this year’s lows, located around the 0.6300 level.

In the event that AUD/USD stabilizes and bounces back from its current position, overhead resistance can be seen at 0.6460. Successfully piloting above this technical barrier might attract new buyers into the market, creating the right conditions for an ascent towards 0.6510. To confirm the end of the downturn and signal a sustained recovery for the Australian dollar, it is essential to take out this ceiling. If this scenario plays out, the bulls may set their sights on the 200-day simple moving average.

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AUD/USD TECHNICAL CHART

AUD/USD Chart Created Using TradingView