AUD/USD breaks to yearly high, but can buyers maintain?

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