AUD/USD Forex Technical Analysis – Steep Drop in Crude Drives Commodity-Currency Lower

The AUD/USD closed sharply lower on Thursday. An attempt to take out the high for the week failed early in the session, leading to some position-squaring and profit-taking. The selling pressure increased throughout the session as the U.S. Dollar mounted a strong comeback.

Also contributing to the weakness in the commodity-based Australian Dollar was the steep break in crude oil prices. Crude prices broke 5% after the OPEC-led committee agreed to extend the current production cuts by 9 months. Investors were anticipating the move, but were hoping for deeper cuts.

The AUD/USD started the session underpinned by the minutes from the May 3 Fed meeting as dollar traders responded negatively to the central bank’s plan to shrink its balance sheet. However, it began to pick up strength later in the session, helped by falling crude oil and increasing odds of a June rate hike.

Technical Analysis

The main trend is down according to the daily swing chart. However, momentum has been trending higher since May 9.

A trade through .7556 will change the main trend to up. A move through .7401 will shift momentum back to the downside.

The main range is .7449 to .7329. Its retracement zone at .7539 to .7559 is the primary upside target.

The short-term range is .7329 to .7517. Its retracement zone at .7423 to .7401 is the primary downside target. This zone is important to the structure of the market because aggressive counter-trend buyers are going to try to produce a secondary higher bottom. Bearish trend traders are going to try to drive the market through this zone in an effort to make .7517 a new main top.

Forecast

Based on Thursday’s close at .7453 and the downside momentum into the close, the first downside target is the short-term retracement zone at .7423 to .7401. We’ll be looking for a technical bounce on the first test. We’ll consider this zone a failure if the AUD/USD closes below .7401.

If there is an aggressive turnaround to the upside then look for buyers to go after the minor top at .7517. This is followed by the main 50% level at .7539, followed by the main top at .7556.

Taking out .7556 will change the main trend to up and could create enough upside momentum to challenge the main Fibonacci level at .7589.