Australian dollar technical forecast: AUD/USD plunges to pivotal support

The Australian dollar plunged more than 2.2% against the US dollar on the heels of a hotter than expected US inflation read with AUD/USD now approaching multi-year downtrend support. We’re looking for possible price inflection here with a break lower threatening an even sharper Aussie sell-off. These are the updated targets and invalidation levels that matter on the AUD/USD weekly technical chart.

Australian dollar price chart – AUD/USD weekly

In our July, AUD/USD Technical Forecast we highlighted that that AUD/USD had rebounded off the lower parallel of this multi-year descending pitchfork formation – that recovery failed into the median-line / August 2021 low-week close at 7138 last month before reversing sharply with the decline now once again approaching the lower parallel. It’s decision time for the Aussie bears.

A break below this slope exposes a key support pivot at 6621/70- a region defined by the 100% extension of the 2021 decline , the 2008 low-week close and the 2019 low. Ultimately, a close below this threshold would be needed to fuel the next leg lower in price towards the 61.8% Fibonacci retracement of the entire 2020 rally at 6461. Initial weekly resistance is eyed at the 25% parallel (currently ~6930s) backed by the November 2020 low / 2020 yearly open at 6991-7016.

Broader bearish invalidation now lowered to the 52-week moving average which converges on the median-line around 7139.

Bottom line: The Australian dollar is approaching multi-year downtrend support and we’re looking for a reaction in price on a stretch towards the lower parallel – watch the weekly close. From a trading standpoint, rallies should be capped by the monthly open at 6840 if price is indeed heading lower with a close below 6621 needed to fuel the next major-leg lower in price.

Australian dollar trader sentiment – AUD/USD price chart

Summary

• A summary of IG Client Sentiment shows traders are net-long AUD/USD - the ratio stands at +2.43 (70.85% of traders are long) – typically bearish reading
• Long positions are 2.41% higher than yesterday and 18.31% lower from last week
• Short positions are26.43% lower than yesterday and 19.54% lower from last week
• We typically take a contrarian view to crowd sentiment, and the fact traders are net-long suggests AUD/USD prices may continue to fall. Traders are further net-long than yesterday and last week, and the combination of current positioning and recent changes gives us a stronger AUD/USD-bearish contrarian trading bias from a sentiment standpoint.

Australia / US economic calendar

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