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FX Analysis

Chart of the week – AUD/USD at risk of major bearish breakdown

forex

Chart of the week – AUD/USD 

AUD/USD at risk of major bearish breakdown (short to medium-term technical analysis)

Time stamped: 7 Feb 2022 at 2:00pm SGT (click to enlarge chart)

Source: CMC Markets

  • The AUD/USD has managed to drift downwards and hit the expected support/target of 0.7000/0.6995 as per highlighted in our previous “Chart of the week” feature for the week of 17 January 2022.
  • The 0.7000 is a major support level for the AUD/USD where previous down moves in price actions have managed to stall on 25 September 2020 and 2 November 2020 before it shaped a multi-month bullish impulsive up move sequence of 1016 pips to print a 52-week high of 0.8007 on 25 February 2021.
  • In the past one week, the AUD/USD has managed to stage a bounce of 200 pips from the 0.7000 major support after it printed a fresh 52-week low of 0.6967 on 28 January 2022. The bounce has stalled right below a key 0.7180 key medium-term pivotal resistance that is defined by a confluence of elements; the former recent swing low of 19 January 2022, the descending trendline from 13 January 2022 high and the 61.8% Fibonacci retracement of the recent drop from 13 January 2022 high to the 28 January 2022, 52-week low of 0.6967.
  • Last Friday (4 February) price action has formed a daily long bearish candlestick follow through and wiped out all its prior three days of gains since 1 February. These observations suggest that the recent 200 pips bounce from 28 January 2022 low (close to the 0.7000 major support) is likely to be a potential dead cat corrective rebound rather that the start of a multi-month recovery process.
  • Hence, the AUD/USD is now at a risk of unfolding a potential major bearish breakdown that may unleash a significant impulsive multi-month down move sequence. In the short to medium-term horizon, watch the 0.7180 key medium-term pivotal resistance for a potential drop back to retest 0.7000/0.6967 and a weekly close below 0.6967 is likely to trigger the potential impulsive down move sequence towards 0.6900 and 0.6820 in the first step.
  • On the other hand, a 4 -hour close above 0.7180 negates the bearish tone for an extension of the corrective rebound to retest the 13 January 2022 swing high area of 0.7310.

 


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