Technical Sentiment: Bearish

Key Takeaways

• The Australian Dollar has been dominated by selling pressure in recent sessions;
• U.S. traders will focus on the Pending Home Sales release, with bullish expectations for a 1.4% increase;
• AUD/USD triple top formation could lead to a deeper correction on a break below 0.9350.

Although the Australian Dollar has been very bullish against its greenback counterpart throughout June, most of these gains could be corrected in the coming day if the pair confirms what appears to be a very strong reversal pattern.

Technical Analysis

In the last two weeks AUD/USD has been predominantly consolidating, rather than trending upwards. This new behavior led to the formation of a triangle-like pattern, with support marked by Higher Lows and a flat resistance marked by the three tops in the 0.8437/44 region.

At the time of this writing AUD/USD is nearing a minor support cluster at 0.9380, marked by the support trendline and the 100 Simple Moving Average on the 4H time frame. A close below this area should trigger another small sell-off, at a minimum down to 0.8353, as price exits the triangle formation.

The larger reversal pattern will only be confirmed if price descends below 0.8350. The bullish pattern of Higher Lows will then be invalidated and traders focus will change to selling rallies while they aim for lower support levels. A bounce is likely in the 0.9320/35 region, where the 50% Fibonacci Retracement between 0.9208 and 0.9444 is strengthened by two large moving averages (50-Day Moving Average and 200 SMA on 4H time frame). On a larger timescale, a sell-off below 0.9320 could bring AUD/USD down to 0.9200 in July.

It should be noted that AUD/USD maintains a bullish tone while trading above the current trendline, so there is no point in preemptive selling action without price action confirmation.

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Prepared by Alex Z., Chief Currency Strategist at Capital Trust Markets