Key Points:
- Despite recent bullishness, the AUD could be about to tumble.
- Overarching chart pattern signals that the bears are on the verge of a comeback.
- Losses could extend to 0.7376.
The AUD has been on the offensive again this week, advancing almost 100 pips since Monday. As a result, hopes of the pair bursting through the long-term trendline are beginning to circulate and the bulls are gearing up for yet another push higher. However, this may all be a set up for a major slump that could erase the entirety of the rally seen over the prior two months.
More precisely, a messy double top/head and shoulders structure seems to be taking shape which indicates that the bears may be about to stage a comeback in a big way. Indeed, selling pressure could drag the pair as low as the 0.7376 handle by late August – even if a brief interruption is expected around the neckline as a result of the 100 day EMA. However, we will need to see some further confirmation in the form of a retreat below the 0.7634 mark before committing to this long-term view.
On that note, there is actually a fairly good technical argument for a confirmatory retreat. For one thing, despite the recent surge higher, the Parabolic SAR remains bearish and this will certainly be capping upsides to a significant degree. Additionally, the presence of the long-term trendline won’t have gone unnoticed and this could also provide an effective cap on upsides even in the event that the Parabolic SAR inverts. One final thing to consider is the movement of the stochastics into overbought territory as this is going to see selling pressure build as the week draws to an end.
Overall, the near-term outlook is rather bearish which should help the rest of the broader structure to form. Nevertheless, one important thing to remember is that the neckline is likely to be somewhat asymmetrical as a result of the 100 day moving average. Moreover, the overall pattern is likely to be more of a head and shoulders rather than a simple double top due to a potential reversal around the 38.2% Fibonacci level. However, once the pair has broken through that 100 day EMA, the plunge could be rather rapid so keep a close eye on the AUD moving forward.