The sell-off in the Australian dollar against its US counterpart has been going on for some time now and over the last 12 months in particular, it has been declining at a fairly steady rate. The descending channel that has formed in this time may be about to give the signal that a correction has begun.
The pair rallied strongly last week, benefiting greatly from the recovery in commodities, and may have gathered enough momentum to take it through the channel resistance and enter a more prolonged correction.
Last week’s rally has taken the pair back to the top of the channel and the weekly candle alone would suggest there’s plenty of momentum in the move, putting the channel resistance at risk.
Adding to this though is that the neckline of the double bottom – formed since 24 August – has been broken, which in itself is very bullish and suggests a strong push to the upside could follow.
Even taking into consideration the two possible positions of the neckline – be it in line with 18 September highs or consistent with the two bottoms which are not flat – there has been a daily and weekly close above. The latter was even retested today and provided sufficient support.
The break of the channel resistance would now provide further confirmation of the more prolonged move to the upside and based on the size of the double bottom, this could take it back to 0.7620-0.7640 (orange and red lines on the chart).
Here it would roughly coincide with prior support and depending on how long the move takes, the 233-day simple moving average.
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