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.

AUD/USD Price Analysis

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.

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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.

AUD/USD Price Analysis

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)

Australian Dollar / US Dollar
Daily change
0.67225
Low: 0.667
High: 0.67327

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