AUDUSD Rebounds from Double Bottom Neckline

26 Oct 2021

After a strong uptrend since the beginning of October that broke a few resistance levels, AUDUSD retraced last Thursday to retest a critical neckline but the pair managed to find support above level. At the time of analysis, it is flirting with the psychological level 0.75 and is on the verge of surpassing it. In this article, we will provide an overview of the technical setup of AUDUSD in the recent months and elaborate how these setups paint a bullish picture for the pair.

Zooming out on the charts, we could observe that the AUDUSD displayed 3 bullish reversal chart patterns that occurred towards the end of its 5-month bearish downtrend. Firstly, the pair had consolidated in a falling wedge since February till a breakout of the formation on 11^th October. Falling wedge is a bullish pattern that begins wide at the top and narrows as prices go lower. A break of its upper resistance band would normally set a technical target at the top where the wedge formation began.

Secondly, the AUDUSD also completed a double bottom formation where it broke above the neckline of 0.745 last Tuesday. The double bottom is another bullish reversal patterns which signals that the bearish momentum has waned with buying power lifting prices after sellers attempts to push prices lower twice. A completion of this formation hints an upside equivalent to the depth of the double bottoms. After the breakout last Tuesday, the pair retraced to retest the neckline on Thursday and successfully rebounded from the critical resistance-turned-support level to edge higher.

Thirdly, the double bottom formation mentioned above can also be seen as an ascending triangle. An ascending triangle is identified with a horizontal trend line drawn along the swing highs, while the lower support line is drawn along higher lows. Traders typically watch for breakouts from these patterns as they normally indicate further advance.

In terms of technical indicators, the Relative Strength Index (RSI) is bullish with a reading of 66. It is worth noting that in an uptrend, RSI tends to stay above the neutrality level of 50. The Moving Average Convergence Divergence (MACD) on the other hand, shows confluence of a bullish setup with the histogram in the positive region and above the signal line.

Looking ahead, we hold the view that AUDUSD will advance to test the 50% Fibonacci level at 0.7560. If the pair manages to edge higher, the next target will be set at the 38.2% Fibonacci level at 0.7665. In the event where the bullish momentum is not sustained, the chart pattern neckline at 0.745 and 0.732 in extension would serve as support.

Key events to watch in the coming week:

Tuesday, October 26

USD – Housing Price Index (MoM)(Aug), S&P/Case-Shiller Home Price Indices (YoY)(Aug), New Home Sales (MoM)(Sep), Consumer Confidence (Oct)

Wednesday, October 27

USD – Durable Goods Orders ex Transportation (Sep), Durable Goods Orders ex Defense (Sep), Durable Goods Orders (Sep), Nondefense Capital Goods Orders ex Aircraft (Sep)

AUD – RBA Trimmed Mean CPI (QoQ)(Q3), Consumer Price Index (YoY)(Q3), Consumer Price Index (QoQ)(Q3), RBA’s Debelle speech

Thursday, October 28

USD – Core Personal Consumption Expenditures (QoQ)(Q3), Gross Domestic Product Price Index (Q3), Personal Consumption Expenditures Prices (QoQ)(Q3), Initial Jobless Claims (Oct 22), Gross Domestic Product Annualized (Q3), Pending Home Sales (MoM)(Sep)

Friday, October 29

USD – Core Personal Consumption Expenditures – Price Index (MoM)(Sep), Personal Income (MoM)(Sep), Personal Spending (Sep), Core Personal Consumption Expenditures – Price Index (YoY)(Sep), Chicago Purchasing Managers’ Index (Oct), Michigan Consumer Sentiment Index (Oct)

AUD – Retail Sales s.a. (MoM)(Sep)

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