AUD/USD Tumbles After Bear Flag Pattern Break

After attempting to scale above a Fibonacci retracement for the last two sessions, AUD/USD is seen turning sharply lower. The pair has fallen through a flag pattern seen on a 4-hour chart and is on track to post a daily bearish engulfing candle to erase gains from the past four sessions.

A 38.2% Fibonacci retracement measured from November highs to lows falling at 0.7489 has held the recovery in AUD/USD. The pair initially touched the resistance level on Monday and following a two-day consolidation, a technical break lower was today. The pair has been declining steadily since the Asian session, with the flag pattern break occurring just after the North American open. The pair has been met with support at 0.7382 and has fallen into a consolidation. The level reflects October 2015 highs.

The US Dollar trades broadly higher today, gaining against most of its counterparts. The Loonie has posted a small gain against the Greenback on the day as an oil output deal by OPEC has caused a significant rally in oil prices to keep the Canadian Dollar supported. The British Pound trades relatively unchanged against the Greenback, while the Japanese Yen has led the decliner’s among the majors as USD/JPY shows a loss of nearly 200 points. The Aussie Dollar takes the second spot on the decliner’s list, gaining only against the Yen in today’s trading session.

After posting a low in Asian trading, the trade-weighted US Dollar index (DXY) has rallied to briefly trade at fresh highs for the week. DXY is seen consolidating near weekly highs and is on track to post a bullish engulfing candle to snap a 4-day losing streak and erase losses from the prior two sessions.

Building permits out of Australia declined by 12.6% in October following a revised decline of 9.3% in the prior month. The data stands to have a negative impact on the Australian housing market. The Reserve Bank of Australia has been relying on a stream of supply to come into the market in 2017 to balance demand and has been battling with high house price inflation for much of this year, a trend seen among most commodity currency economies.

Out of the United States, ADP non-farm payrolls indicating an employment gain of 216,000 ahead of the analyst expected gain of 161,000 and a revised gain of 119,000 in the previous reading. The core PCE index remained unchanged at 1.7%, while the figure is not expected to influence expectations for a December rate hike, a lack of a rise in the figure will tend to somewhat dampen expectations for the path of normalization in 2017.

The technical developments in AUD/USD today suggest that the downtrend in the pair may have resumed. The daily bearish engulfing candle can serve to keep recoveries short-lived and the first level of upside resistance in the event of a turn is seen at 0.7423. A break of support at 0.7382 would accompany a first target at last week’s low of 0.7311.

AUD/USD 4-Hour Chart

AUDUSD 4H Nov 30

Jignesh is an analyst and trader, specializing in currencies and commodities. He utilizes a macro view as well as a proprietary method of pattern recognition that is based on the principles of Elliott wave. His focus is to assess strength in trends, and perceiving high potential turning points in the markets. He brings over 4 years of experience in his current role.