- A combination of factors help AUD/USD gain traction on Wednesday.
- A good recovery in the demand for the dollar limits any significant rise.
- The formation of an uptrend channel favors the bulls.
The AUD/USD pair rallied on Wednesday and may now try to ride the previous day’s bounce from near the 0.7050 support zone.
The Australian dollar was supported by the aggressive signal from the Reserve Bank of Australia that a further rate hike in June is still possible amid upside risks to inflation. In addition, a modest rebound in global risk sentiment further benefited the risk-sensitive AUD, although the appearance of some buying around the US dollar capped gains ahead of the FOMC minutes.
From a technical point of view, the recent strong recovery from the yearly low has occurred along an ascending channel, pointing to a well-established short-term uptrend. The lower bound of such a trend channel coincides with the 100-hour SMA and should act as a reference point. It is closely followed by the 23.6% Fibonacci retracement of the 0.6829-0.7128 rally.
A convincing break below this level will be seen as a new trigger for the bears and will lead to aggressive technical selling. The AUD/USD pair could then accelerate the decline towards the Fibonacci 38.2%, around the 0.7015 region. The downtrend could extend further towards the psychological 0.7000 level towards the 50% Fibonacci near the 0.6980 zone.
On the other hand, momentum beyond the weekly high around the 0.7125 region has the potential to lift AUD/USD up to rising channel resistance around the 0.7175-0.7180 area. Continuation buying would mark a further breakout to the upside and pave the way to break above the 0.7200 round level towards the test of the 200-Day SMA, currently around the 0.7260-0.7265 area.
AUD/USD 1 hour chart
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AUD/USD additional levels
Source: Fx Street
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