The AUDUSD pair also nicknamed the Aussie pair, emerged as one of the strongest currencies during the COVID-19 pandemic. Investors loved the way the Australian government handled the pandemic, and the rise in the price of precious metals contributed to the strong Aussie dollar too.
The currency market, and not only, movies based on fundamental and technical factors. Fundamental analysis, based on economic news and events capable of influencing the prices, has an important role in market participants’ positioning. So does technical analysis.
The bigger technical picture on the AUDUSD pair suggests the recent rally we have seen in the past twelve months may come to a halt. The price meets strong resistance – not to be said that it cannot overcome it, but given the timeframe, longs should be cautious.
AUDUSD at Key Resistance – 0.8 and 0.7 Pivotal Levels in the Long Term
Judging by the chart above, this is not the first time when the AUDUSD pair moves in a vertical manner. It did so in the past and will do so in the future as well.
The trend lower prior to the 2020 bottom started with a triangle as a reversal pattern. In terms of the Elliott Waves Theory, such a triangle appears as the last segment of a complex correction. We see that by the time the AUDUSD pair broke below the lower edge of the triangle, it kept forming lower lows and lower highs, a representative series for a bearish trend.
The 0.8 level catches the eye. By the time the market broke below it, it had offered resistance. So strong was the rejection for the first time that the market dipped to a new lower low.
With the current bounce, the AUDUSD pair is back to the resistance area. In the world of currency trading, we should not refer only to a resistance or support level (e.g., 0.8) but to the area surrounding the level. Therefore, if we use the historical reaction around the current area, the AUDUSD pair reached resistance.
If it fails to break above 0.8, the Aussie pair risks a rejection to the 0.70 level. On such a move, traders will place their bets on an inverse head and shoulders pattern.
All in all, bulls should be cautious here. The best way to trade the current levels, assuming someone was long from last year and bought the dip, is to book partial profits and raise the stop to break-even as to protect the downside. If the market is strong enough and closes above the 0.8 on this timeframe, we can say that the bullish trend remains in the cards.