The AUDUSD extended its gains this week after breaking above the 100-bar moving average on the 4-hour chart, set at 0.65435. This move bolstered a more bullish sentiment, prompting buyers to aim for higher levels and reaching new weekly highs.
The rally faced resistance at a trendline near 0.66197, limiting further upward movement. The subsequent pullback found support between 0.6588 and 0.65945, indicating a near-term risk level for buyers. Holding this support zone maintains the short-term bullish bias and could lead to new highs for the year.
Break Below And Trend Continuation
Should AUDUSD break below 0.6588, the bullish outlook might diminish, bringing focus to the 38.2% retracement at 0.65556. The 100- and 200-bar MAs are near 0.65435 and 0.65265, respectively, suggesting important levels if the price declines further.
A renewed push above the trendline resistance of around 0.6620 could offer buyers additional momentum. This move would sustain the bullish trend and potentially lead to higher levels in the currency pair.
We see the pair has stalled precisely at the trendline resistance identified in the analysis, creating a critical decision point. This pause allows us to look beyond the charts and into the economic data that will likely dictate the next move. For now, the bulls and bears are in a standoff right where the technicals suggested they would be.
Fundamental Economic Indicators
The fundamental picture in Australia gives us reason to be cautiously optimistic. Recent data showed the monthly CPI indicator holding firm at 3.6% year-over-year, which should keep the Reserve Bank of Australia from cutting interest rates anytime soon. This policy stance provides a solid foundation for the currency, especially with the unemployment rate remaining low at a steady 4.0%.
In contrast, the outlook from the United States is softer, with core inflation as measured by the PCE price index recently cooling to 2.8%. This keeps the door open for a Federal Reserve rate cut later this year, creating a potential policy divergence that favors the Australian dollar. We believe this developing interest rate differential is a primary reason to favor buying on dips.
Therefore, for traders who share this bullish-leaning view, buying call options with strike prices above the 0.6620 resistance level could be an effective strategy. Should the price dip toward the support zone near 0.6588, it may present an attractive entry point to position for a potential breakout. This approach clearly defines our risk while offering significant upside if the rally resumes.
However, we must respect the key risk level highlighted by Michalowski’s work. A convincing break below the 0.6588 support area would invalidate the immediate bullish thesis and signal a shift in momentum. In that event, we would pivot to consider buying put options, targeting a move back toward the cluster of moving averages near the 0.6540 level.
Historically, the AUD/USD has performed well during periods when the Federal Reserve is poised to cut rates while the RBA remains on hold. While we remain watchful of mixed economic signals from China, a key consumer of Australian commodities, the central bank narrative appears to be the dominant driver for now. This historical pattern reinforces our strategy of looking for buying opportunities on weakness.
