AUD/USD Price Analysis: overbought at 261.8 per cent
AUD/USD Price Analysis: with sentiment being overbought, indicators and chart formations are highlighting scope for a large correction lower.
Market highlights from the last week
Monday August 24: trading conditions were subdued on Monday with low volumes and a lack of major data releases.
Tuesday August 25: overall risk conditions were more cautious amid uncertainty over the global recovery, but coronavirus vaccine optimism limited any adverse trends.
Wednesday August 26: commodity currencies secured significant net gains as the US currency retreated and monetary policy remained expansionary.
Thursday August 27: comments from Fed Chair Powell dominated on Thursday with the Fed switching to average inflation targeting and emphasising that employment was now a greater priority.
AUD/USD Price Analysis
Let us have a look at the technical viewpoint:
Monthly: traded to a multi-year low of 0.5506 in March. The trend of lower lows at 0.6845 has been clearly broken. What was resistance is now support.
Weekly: We have a 261.8 per cent extension level at 0.7393 (from 0.5506-0.6220). Are we seeing the completion of a fifth wave (Elliott Wave)? This would then mean a corrective three-wave pattern lower.
Daily: bearish divergence can be seen on the daily chart (price makes a higher high while the oscillator makes a lower high). Often seen at the top of a trend and the start of a new downward bias.
What is your sentiment on AUD/USD?
Intraday four-hour: formed a three-candle bearish pattern known as an Evening Doji Star. We have posted a DeMark 13 count. This often indicates the top of a trend.
Outlook: with sentiment being overbought, indicators and chart formations are highlighting scope for a large correction lower.
Possible trade setup
Action: selling at the market (currently 0.7351)
Stop: 0.7401 (projected DeMark Stop)
Target: 0.6850 (reverse trend line support)
Potential return on risk to first target: R10 (reward 501 / risk 50)
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