AUD/USD breaks to yearly high, but can buyers maintain?
After a two-year sell-off AUD/USD bulls have finally gotten back in the driver’s seat – but can they stay there?
AUD/USD sentiment, price and analysis
- AUD/USD has set a fresh yearly high
- IG client sentiment (IGCS) currently showing a bearish read from retail traders apparently trying to call a top
The Australian dollar is continuing the rally that started in March and, with some help from a weakening US dollar, was able to break out to a fresh yearly high. The .7000 level came into play in June and helped to hold buyers at bay; but with this week’s bullish breakout retail traders have increased their short positioning, keeping the door open for topside potential.
AUD/USD IG client sentiment
The current IGCS read for AUD/USD is showing a heavy imbalance on the short side as roughly 65.11% of retail traders holding positions in the pair are net-short. That short positioning has been steadily increasing since the third quarter (Q3) open, helped along by a weak US dollar pushing pairs like AUD/USD higher. As AUD/USD broke out beyond the .7000 level this week, setting a fresh yearly high along the way, retail traders have increased that short positioning while apparently trying to call a top in the pair.
We typically take a contrarian view to crowd sentiment, and given this bearish imbalance after a recent bullish breakout, further upside could be ahead.
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AUD/USD IGCS chart
AUD/USD technical outlook
Much has changed for the Aussie since the coronavirus pandemic has come into the equation, and this is fairly well illustrated in the AUD/USD major pair. After setting start on a downtrend in January of 2018, the pair gave up more than 2500 pips over the next two years. The month of March was especially volatile as AUD/USD pushed down to a fresh 17-year low, eventually finding buyers just above the .5500-handle. Since then, however, a far different tone has taken over as bulls have made a pronounced re-entry back into the situation, erasing the entirety of that early-2020 sell-off and then some.
The .7000 level was a big item of resistance when it came back into play in early-June; and this price held buyers back for more than a month as a bull pennant formation built in the pair. That led into this week’s breakout with a move up to a fresh yearly high, and given recent strength combined with the current IGCS outlay, the topside of AUD/USD can remain of interest in the days ahead.
AUD/USD daily price chart
This information has been prepared by IG, a trading name of IG Australia Pty Ltd. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients.
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