- AUD / USD saw some selling on Thursday and reversed the positive move of the previous day.
- Sustained weakness below 0.7700 will validate a bearish head and shoulders pattern.
The pair AUD/USD It updated the daily lows, around the 0.7720 region during the early days of the American session and has now reversed the positive movement of the previous day.
Renewed fears about another dangerous wave of coronavirus infections in some countries boosted some safe haven flows to the US dollar and shifted flows away from the Australian perceived as riskier. The USD was further supported by a good intraday rally in US Treasury yields and better-than-expected jobless claims data.
From a technical perspective, the recent price action over the last week or so now appeared to constitute the formation of a bearish head and shoulders pattern on the hourly charts. The neckline support is pegged near the 0.7700 mark, which if broken suggests that the recent positive move has already been exhausted.
The setup is bolstered by the fact that the technical indicators on the hourly charts have moved lower in bearish territory. Also, the oscillators on the daily chart, while still holding in positive territory, have been struggling to gain significant traction, adding credibility to the negative outlook.
That being said, it will still be prudent to wait for sustained weakness below the 0.7700 level before confirming a short-term bearish breakout and positioning for any further depreciation moves. The AUD / USD pair could become vulnerable to accelerate the decline towards a resistance break point in the trading range, around the 0.7660 area.
This is followed by support near 0.7600. Some subsequent selling should pave the way for an extension of the bearish trajectory and allow bearish traders to challenge the yearly lows, around the 0.7530 region.
On the other hand, the 0.7760-65 zone now appears to have emerged as a strong immediate resistance. A convincing advance could trigger a short hedging move and lift the AUD / USD pair towards the 0.7800 level. Any subsequent strength, leading to a move beyond the 0.7815 region, will negate any short-term bearish bias.
4 hour chart
Technical levels
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