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Talking Points:
- AUD/USD Technical Strategy: Flat
- Prices Break Four-Month Trend Line Resistance, Hint at Further Gains
- Risk/Reward Parameters, Looming Event Risk Discourage Taking Trade
The Australian Dollar is poised to continue higher against its US namesake after prices broke above falling trend line resistance capping gains since mid-May. Prices began to recover as expected after the Aussie put in a bullish Morning Star candlestick pattern.
Looking ahead, a daily close above the 61.8% Fibonacci retracement at 0.7236 opens the door for a challenge of the 76.4% level at 0.7313. Alternatively, a turn back below the 50% Fib at 0.7173 – now recast as support – clears the way for a test of the 0.7110-37 area, marked by the aforementioned trend line and the 38.2% retracement.
Risk/reward considerations argue against taking a trade at the moment. The available trading range is narrower than 20-day ATR, suggesting prices are wedged too closely between near-term resistance and support to justify taking up the long or the short side (assuming a stop-loss triggered on a daily closing basis, as or strategy calls for).
Furthermore, the upcoming FOMC policy announcement represents a major inflection point for risk appetite that may trigger outsized volatility and disrupt positioning. With that in mind, we will continue to stand aside.
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