AUD/USD Continues to Work Towards Breakout Pattern

AUD/USD Technical Outlook

• AUD/USD validated trend-line from October
• Price action continues to narrow towards apex of wedge

AUD Technical Outlook: AUD/USD Continues to Work Towards Breakout Pattern

Last week, AUD/USD reversed hard off the trend-line from October, with a key reversal setting up Aussie for a move lower. The reversal off the trend-line validated the it for the first time since coming into existence. This is setting up for a technical formation to continue to mature.

Between the trend-line from October and big horizontal support dating to October 2018, a descending wedge is starting to come into view. It will take some more time to develop and may not even create an opportunity until as far as April.

But the makings of a solid pattern are there, it just may require some patience before we have anything we can do with it. A decline back down to the 7000-line, which aside from being a psychological level has real meaning otherwise.

The most recent lows in December and January were carved out emphatically around that level. If price continues to wedge lower and ultimately break in the direction of the trend, a tendency descending wedges have, then we could see a big rush lower.

If, however, we don’t see that be the case there could still be a powerful breakout to the upside. The nature of these patterns is that vol ebbs and flows and that with a contraction in volatility (and price), one way or another it will inevitably rise again and see price make a strong move.

For now, traders may only be left with very short-term opportunities as the contraction in price action continues. The more it contracts the fewer the opportunities will be until a breakout develops. A break above the trend-line with confirmation above the Feb 10 high at 7248 could spark a bit of a rally towards 7314 and the confluent 200-day moving average/one-year downtrend line. This would negate the continued development of the pattern.

AUD/USD Daily Chart

AUD/USD Chart by TradingView

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—Written by Paul Robinson, Market Analyst

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