AUDUSD in short corrective phase within broader uptrend

DESPITE the strengthening of the US dollar, the AUDUSD managed to appreciate against the greenback after hitting a 2022 low at 0.69671 on Jan 28. Since then, the pair has trended higher in an ascending channel that stretches back to December 2021.

At the time of analysis (Apr 8, 2022), the pair is trading within the rising channel, after retreating from a failed attempt to close above the channel resistance line. In spite of the short term pullback, various technical setups still point towards a bullish trajectory for the AUDUSD.

Apart from the rising channel that indicates the pair is in a current uptrend, AUDUSD has also displayed a bull flag formation. A bull flag is identified when prices form a series of bullish candles (resembling a flag pole), followed by a small descending channel, which looks like a flag. This chart pattern is a bullish continuation pattern which means prices tend to rise further upon breaking above the flag.

AUDUSD broke out from the bull flag on Apr 4 and gained 140 pips, before retreating back into the flag formation. A bullish bias still holds as long as prices find support above the flag support trend line.

Secondly, another bullish signal that appeared on the daily chart is a Golden Cross, whereby the shorter term 50-day exponential moving average (50 EMA) crosses above the longer term 200 EMA.

A Golden Cross is regarded as the confirmation for a bullish trend reversal, which suggests that the prevailing uptrend is likely to continue.

In terms of momentum indicators, both the Relative Strength Index (RSI) and Moving Average Convergence Divergence (MACD) show that the pair is currently enjoying bullish momentum. The RSI signals overbought conditions when its reading is above 70, and oversold when it is below 30.

Currently, the RSI resides above the 50 neutrality line, indicating bullish momentum. Moreover, a RSI convergence (where RSI mirrors price movements) on AUDUSD further validates the uptrend.

In the immediate short term, however, prices may have some room to fall before another leg up, as the RSI may retest the 50 level and establish a support above it.

At the time of analysis on Apr 8, we hold the view that AUDUSD is currently in a short corrective phase within a broader uptrend.

In terms of immediate support levels, traders should look out for the 20-day EMA and 0.7425 (S2) in extension. If these support levels are held, the pair is poised to retest the resistance at 0.7557 (R1) and 0.7646 (R2).

The writer is strategist at Phillip Nova