audusd squeezed up but still below 0 7755 major resistance 2689012017

Yesterday’s push up in the AUD/USD has met our expected upside target of 0.7615 with a maximum limit set at the 0.7654 medium-tem pivotal resistance. Please click on this link to recap our previous short-term technical outlook dated on 10 March 2017

The squeezed up in the AUD/USD came in beyond expectations as yesterday’s (15 March) FOMC monetary policy statement was less hawkish than expected where the Fed had emphasized a “gradual pace” of rate hikes and remained neutral on inflation expectations  where it stated that  “survey-based measures of longer-term inflation expectations are little changed, on balance”.

In addition, the dot plot of future projected Fed fund rate hikes has remained the same where the median forecast from FOMC officials is set at two more rate hikes for 2017 and three hikes in 2018. Thus, all these outcomes did not represent acceleration on the pace of monetary tightening at this juncture. However, there are several fundamental considerations that can reverse yesterday’s sell-off seen in the USD triggered likely by “late” USD longs as these positions got unwound.

• Inflation continues to pick up especially imported inflation from China.
• More details and clarity on U.S. President Trump’s proposed fiscal policies being announced.
• Interestingly, in yesterday’s FOMC’s monetary policy statement, it was highlighted that business fixed investment “appears to have firmed somewhat” from “has remained soft” as per highlighted in previous statements since Mar 2016. The change of tonality seems that the Fed is optimistic that durable goods orders will pick up in the coming months. Therefore, if indeed such data starts to see signs of improvement after a dismal reading in January 2017 where core capital goods (ex defence & aircraft) orders fell to 0.4% y/y, it can lead to a more confident Fed to embark a “steady pace” of interest rate increases from a “gradual pace”.

Now, let’s us examine the latest technical elements on AUD/USD

Short-term Technical Outlook on AUD/USD

(Click to enlarge charts)

Key technical elements

• As seen from its weekly chart, yesterday’s push up in the AUD/USD is now right below the 0.7710/55 resistance zone which is defined by a confluence of elements. The median line of a long-term a bearish descending channel in place since its July 2011 high of 1.1080, the pull-back resistance of a former ascending trendline support from January 2016 low of 0.6827 and a Fibonacci cluster.
• Based on the Elliot Wave Principal and fractal analysis, the current up move from the 0.7487 low printed on 09 February 2017 can be considered as a corrective rally of a minor degree to retrace the down move from 23 February 2017 high. Yesterday’s continuation of the up move from the 14 March 2017 minor swing low of 0.7535 is likely an extended wave c rally after the squeeze seen on late USD longs before the FOMC announcement.  The breakdown on the composition of up move wave c suggests that it had already undergo 4 waves of a lower minute degree; i, ii, iii & iv.  Right now, it is attempting to complete the wave final wave v to complete the minor degree wave c with potential end target at 0.7732/7740 zone (see hourly chart).
• The hourly Stochastic oscillator is now back to its oversold region and still has room to manoeuvre to the upside before it reaches an extreme overbought level. These observations suggest that there is still potential residual upside momentum of price action left.

Key levels (1 to 3 days)

Intermediate resistance: 0.7732/40

Pivot (key resistance): 0.7755

Supports: 0.7675, 0.7630 & 0.7585

Next resistances: 0.7835 & 0.7900 (see weekly chart)

Conclusion

Yesterday’s steep rally in the AUD/USD is likely to be corrective in nature rather than the start of a multi-month bullish move.  The pair may now see a final push up to test the 0.7732/40 intermediate resistance before a potential bearish reversal materialises to target the supports at 0.7675 and 0.7630 in the short-term (1 to 3 days).

However, a clearance above 0.7755 pivotal resistance is likely to invalidate the preferred bearish reversal scenario for a further rally to target 0.7835 (21 April 2016 swing high) and even the key long-term resistance at 0.7900.

Charts are from eSignal

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