AUD/USD Monthly Technical Analysis for May 2016

The AUD/USD finished April at .7606, down 0.0051 or -0.67%. A surge in commodities prices and increased speculation the U.S. Federal Reserve would refrain from an interest rate hike until the end of the year, drove the Forex pair into its highest level since June 2015.

However, the Aussie ended the month on a down note after the country reported soft consumer inflation figures. The Aussie broke sharply after data showed Australia’s consumer prices unexpectedly fell 0.2% in January – March, missing the median forecast of a 0.3 percent rise.

It was the first time since 2009 the inflation gauge fell to a negative level, raising speculation that the Reserve Bank of Australia may have to consider rate cuts. This potentially bearish news could carry over into May. The Reserve Bank of Australia will make its interest rate decision on May 3.

Technically, the main trend is up according to the monthly swing chart. However, the closing price reversal top in April could be a sign that momentum is shifting to the downside. A trade though .7491 will confirm the potentially bearish chart pattern. A trade though .7834 will negate the chart pattern and signal a resumption of the trend.

The main range is .8162 to .6826. Its retracement zone is .7494 to .7652. After taking out this zone earlier in the month, the AUD/USD settled inside it. This zone is likely to act like a pivot. Look for a bullish tone on a sustained move over .7652 and a bearish tone on a sustained move under .7494.

The short-term range is .6826 to .7834. Its retracement zone at .7330 to .7494 is the primary downside target this month.

A sustained move over .7652 will signal the presence of buyers. The first upside target is the angle that stopped the rally in April. It drops in at .7744.

Overcoming .7744 will indicate the buying is getting stronger with the next targets last month’s high at .7834 and a steep uptrending angle at .8106.

A sustained move under .7652 will indicate the presence of sellers. This could trigger a fast test of the main 50% level at .7494 and last month’s low at .7491.

Taking out .7491 will not only confirm the closing price reversal top, but it could also trigger an acceleration to the downside with the next target an uptrending angle at .7406. This is followed by .7330 and .7211.

Watch the price action and read the order flow at .7652 in May. Trader reaction to this Fibonacci level will determine the direction of the market this month.