AUD/USD Forex Technical Analysis – Breaking Out of 18-month Support Base

The AUD/USD soared to a one-year high last week, topping .7800 for the first time since April 2016. The catalyst behind the move was weak U.S. economic data which could curtail the Fed’s plans to raise interest rates at least once more in 2017.

The rally began to gain traction mid-week when Fed Chair Janet Yellen expressed concern over muted inflation and its potential impact on monetary policy. The Forex pair accelerated to the upside on Friday when the U.S. government released disappointing data on consumer inflation and retail sales. The news drove down U.S. Treasury yields, widening the gap between Australian and U.S. government bonds.

The AUD/USD could continue to rally next week if investors decide to pare their expectations for a third rate hike by the Federal Reserve this year. The yield on the 10-year U.S. Treasury note slid 1 basis point to 2.33 percent; Australia’s equivalent stood at 2.71 percent – a 38 basis point spread.

Investors have pegged the chances of a Fed rate hike in December at about 50 percent.

Technical Analysis

With the AUD/USD breaking out to a two-year high, it’s probably best to take a look at the monthly chart.

The main trend is up according to the monthly chart. The trend turned up when the market took out the last swing top at .7749. The next target is the April 2016 top at .7834. This is even a better trigger point for an acceleration into another main top at .8162.

The main range is .9504 to .6826. Its retracement zone at .8165 to .8481 is the primary upside target over the longer-term.

Forecast

The AUD/USD is finally breaking out to the upside after forming a support base for nearly 18-months. Since it looks like the Fed may have to delay its last rate hike for the year until March or June 2018, the rally could extend for several months.

For two months, the Forex pair has been walking up a steep uptrending angle at .7649 this month. Holding above this angle may give the market the upside momentum the market needs to challenge the next major downtrending angle at .8064 this month. These are longer-term targets, however.

Over the short-run the key to sustaining the rally will be holding above the previous top at .7749. A sustained move over this top will indicate that real buyers rather than short-covering is driving this market higher. A combination of both would spike the market even higher.