audusd a potential final push up towards key resistance zone before decline 1844352017

Later today at 1900 GMT, the U.S. Federal Reserve will release its FOMC minutes of its last monetary policy meeting held in January 2017.

Recent Fed’s speeches from key officials such as chairwomen Janet Yellen, Loretta Mester (Cleveland) and Patrick Harker (Philadelphia) have indicated a higher tolerance of higher interest rates given the current state of the U.S. economy where its labour market continues to improve.

These recent hawkish comments from the Fed officials have reinforced a USD recovery especially against the EUR after a month-long of sluggish movement since start of January 2017. However, the AUD remains resilient against the USD as it continued to inch higher back into the 0.7700 handle. Since its December 2016 low of 0.7155, the AUD/USD has rallied by 8% to print a high of 0.7732 on 16 February 2017 which make it the best performing currency among the majors.

One of the fundamental reasons is a less reluctant Australian central bank, RBA to cut its key policy interest rate later in 2017 as RBA is more concerned about a frothy housing market where mortgage lending to investors remains at elevated levels that can have a negative spill-over effect into the broader economy.

On the other hand from a technical analysis perspective, the recent rally seen in the AUD/USD is now right at a significant medium-term resistance zone. Let’s us now examine its key technical elements and levels in greater details.

Technical outlook on AUD/USD

(Click to enlarge charts)

Key technical elements

• As seen from its weekly chart, 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.
• From a shorter time frame (4 hour chart), the AUD/USD has traced out a bearish reversal “Ascending Wedge” chart configuration in place since the 27 January 2017 swing low area of 0.7510.  This type of chart configuration typically forms at the end of an uptrend. In addition, the recent upside momentum of price action has started to deteriorate as seen from its corresponding RSI oscillator which has flashed out a bearish divergence signal.
• From an Elliot Wave Principal and fractal analysis perspective, the on-going movement in the aforementioned bearish “Ascending Wedge” has a potential to shape a final upleg towards 0.7735/55 to complete the “Ascending Wedge” configuration before a potential bearish reversal materialise. This expected fractal analysis is also being supported by the current reading of the 4 hour RSI oscillator where it still remains on support (depicted by the dotted green line) despite the bearish divergence signal.

Key levels (1 to 3 weeks)

Intermediate resistance: 0.7735

Pivot (key resistance): 0.7750

Supports: 0.7654, 0.7590 & 0.7510

Next resistance: 0.7900 (see weekly chart)

Conclusion

Therefore, the AUD/USD may see a final push up towards 0.7735 with a maximum limit set at 0.7755 before a potential medium-term (1 to 3 weeks) bearish reversal materialises. A break below the 0.7654 intermediate support (lower boundary of the “Ascending Wedge”) is likely to reinforce this bearish view for a further decline to target the next supports at 0.7590 follow by 0.7510 (base of the “Ascending Wedge” & the 38.2% Fibonacci retracement of the recent rally from 23 December 2016 low).

On the other hand, a clearance above 0.7735 may see a further squeeze up to test the key long-term resistance at 0.7900.

Charts are from eSignal

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