AUD/USD possible Breakout

ACTION

A buy on a retest of the broken downtrend line and neckline of the inverse H&S formation in the 0.6480-0.6540 zone gives a good R/R ratio. A potential 1st target is in the zone 0.6730 – 0.68.

FUNDAMENT

The interest differential is in favor of the dollar. Australia’s central bank is also on a rate hike cycle, but the hikes are in smaller increments. Unlike the USA, however, the Australian economy shows more stable growth, housing prices are still rising, inflation is at record levels, which suggests that the central bank will continue to raise the key interest rate. Australia’s main trading partner is China and a deteriorating economic outlook there could put downward pressure on the currency. The currency pair is closely correlated with the performance of the stock markets and the corresponding improvement in risk sentiment in the short term has a positive impact on the AUD.

TECHNICAL ANALYSIS

The currency pair has broken the downward trend line, the price is near the major support zone, possible double bottom formation.

Sequentila has printed a 9 to the bottom of the descending channel, there is a reverse and an upward correction is currently developing with a potential test of weekly resistance – 0.67 – 0.68.

On the daily chart, the price today breaks the downward trend line, we also have a break of the neck line of the inverse H&S formation. Sequentila is 5 up, the DeMarker oscillator remains in the overbought zone. I expect the development of an upward movement and reaching the resistance zone 0.67 – 0.68.

BANK EXPECTATIONS

The forecasts of the major investment banks are for a bottom reached in this currency pair and the development of an upward movement in 2023. For Q2 of 2023 we have the biggest coincidences of expectations in the zones 0.65 and 0.68.

ALTERNATIVE SCENARIO:

A daily close below 0.6380 would leave the breakout as a “fake” and open the potential for a test of the October bottom. A successful stop loss is below the 0.6380 zone, measured against the size of the margin account.