AUD trying to recover after a heavy blow from local data

The last few days have been pretty eventful for the Australian currency. The Aussie dollar was rocked by comments from central bank officials and economic data. Comments were generally positive for the currency, acknowledging a strong jobs market, for example, but the economic data released was rather negative for AUD. Traders decided to focus more on the numbers from the macro calendar, which is why AUD is currently in bearish territory with the near future looking bleak.

Apart from the fundamental factors playing a role here, we also have a strong technical influence. First of all, we can see that the decline started after the pair created a head and shoulders pattern (upper green rectangle). This pattern is negative, and allowed for a breakout of the lower line of the upwards channel formation (black) which had been supporting the AUDUSD pair since the beginning of April. The H&S formation induced a drop of more than 200 pips! Interestingly, this decline was made without any corrections. Truly a great display of bearish power. Sellers took a break only recently, on Thursday and Friday, where the pair created an inverse H&S formation (lower green rectangle). That structure started a correction which as we can see is still going on today.

The natural target for this rise is the combination of the orange horizontal resistance and the 38.2% Fibonacci. If the pair gets here and creates a bearish reversal pattern, it will be a great occasion to sell. On the other hand, the pair climbing back above that area will be a trigger to buy…but so far, only in the short term.

Source: Alpari