Key Points:
- Reaching probable point of inflection.
- Moving into final leg of a corrective ABC pattern.
- Stochastics are now overbought.
Now that the RBA’s Cash Rate decision is out of the way, the AUD is looking ready to resume its bearish stint. Specifically, the pair is now at a relatively convincing inflection point and this could mean that the final leg of the corrective ABC pattern is about to begin.
However, the current EMA bias and Parabolic SAR readings could mean that the Aussie dollar dawdles slightly before the downtrend resumes in full.
Firstly, since its downside breakout from the rising wedge structure, the AUD has been climbing steadily higher. Moreover, yesterday’s strong performance has now seen the pair move back to the old downside constraint of said wedge structure. As result of this move, the AUD is now encountering some heavy resistance which should encourage a reversal going forward.
Specifically, we expect to see resistance hold firm not only as a result of the downside constraint of the old wedge pattern, but also due to the presence of the 78.6% Fibonacci level. Notably, this level also coincides with point B of the ABC corrective wave which should also encourage a reversal in the coming sessions. Furthermore, the stochastic oscillator provides even more reason to expect a change in direction as it is now moving into overbought territory.
After reversing, the Aussie dollar should begin to decline in accordance with the ABC wave. Said wave should see the pair retrace to around the 0.7444 level by the beginning of October in the absence of any fundamental upsets. This move would bring the pair back in line with the long-term bullish trend line and will likely be the point at which the AUD begins to climb once again.
However, it is worth noting that the current bullish EMA and Parabolic SAR bias could see the pair resist selling pressure to some extent. As a result, the AUD could remain relatively flat over the coming sessions, especially if Australian fundamentals continue to come in stronger than expected. This being said, momentum presently appears to be shifting and the bears look to be already making themselves felt.
Ultimately, despite its recent performance, the short to medium-term bias for the AUD remains bearish. Consequently, keep an eye on the fundamentals as they could either delay the pair’s tumble or give it the kick it needs to surge lower.