AUD/USD pushed lower quickly during Asian morning without warning, most likely inspired by a break of 0.901 support level. Prices hit a low of 0.8969, but rebounded just as quickly as it declined. As this move wasn’t supported by fundamentals, it is not surprising to see prices rebounding higher. Nonetheless, considering that immediate direction in the short-term is south-bound (as the descending Channel is still in play), the failure for bears to achieve bearish follow-through is a mark against bears and a point for bulls.
But before we start handing out platitudes and label a bullish uptrend in our hands, it should be noted that price action appears to be respecting the descending Channel rather well. As such, it is entirely possible that the descending downtrend as depicted by the Channel is still relevant, and the sharp decline seen this morning may simply be bears getting ahead of themselves and not a true shift in sentiment. Hence traders who have yet to go long and is waiting to enter may wish to seek further confirmation (e.g. break of Channel Top) for stronger bullish conviction.
Technicals favors bears though. Prices appear to be rebounding off Channel Top at the time of writing, while Stochastic readings are also close to the Overbought region, suggesting that current bullish momentum may be at its end. This opens up Channel Bottom as the bearish target but similarly additional confirmation should be sought (e.g. break of 0.901 once again) to affirm bearish conviction as the strong bullish response post Channel Breakout attempt remains cause for concern.
Daily Chart doesn’t tell us much as price remains right in between 0.892 – 0.907 consolidation range where we’ve been trading in since 6-7th Feb. Stochastic readings are pointing higher with the recent trough occurring just as price rebound from the 0.896 soft support. This opens up the possibility of price retuning back to 0.907 even though direction should be lower following the bearish rejection and confirmation seen on 18th Feb.
Without breaking out of the aforementioned consolidation, it will be difficult to determine what is the longer-termed direction that price may go. Certainly fundamentals suggest that AUD/USD should be lower due to the weakening economy of Australia versus the strengthening US economy, but market has been behaving in an rather unexpected manner where Stocks and Commodities (including Gold) are climbing higher without strong fundamental support. As such, further confirmations will definitely helpful and allow us to identify immediate market sentiment slightly better given the apparent lack of clarity and inexplicable price movements.
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