AUD/USD Declines For Second Consecutive Session As The Dollar Recovers

AUD/USD extended lower on Friday, weighed by a recovery in the greenback. The pair trades relatively unchanged for the week following today’s drop and will likely close out the week with a second doji print to signal continued exhaustion in the uptrend that has taken place since December.

The US dollar trade-weighted index posted some gains in early European trading but the bulk of today’s advance has come in the early North American session. The index has scaled back above a horizontal level at 100.74 and erased about three quarters of yesterday’s decline as of the European close. The horizontal level had previously held DXY higher in late November and again in the middle of December and proved to be a hurdle in the prior week. The US dollar has outperformed all the major currencies as of the European close, with the exception of the Japanese yen.

The Australian Dollar traded heavy as compared to its counterparts with a steady decline from a high posted ahead of the European open. Momentum slowed on the approach to a horizontal level at 0.7656 referencing the highest monthly close in 2016. AUD/USD reversed lower on Wednesday following the Wednesday’s Australian jobs report. While the report came in ahead of expectations, a staggering drop in full-time employment pointed to underlying weakness in the labor market.

The economic calendar was relatively light to end off the week. The only release pertaining to the exchange rate was the leading index, reported by the Conference Board to rise 0.6% in January versus an expected gain of 0.5%. The data did not have an impact on the currency markets.

Among the Aussie cross rates this week, AUD/CHF is on track to post a bearish evening star reversal pattern on a weekly chart to snap a prior two-week winning streak. AUD/NZD is likely to close with a doji print on a weekly chart to signal exhaustion after a sharp reversal and notable gains over the past two weeks. The pair tested a declining trendline this week that connects the July high with the October high and failed to break higher.

A breakout appears imminent in AUD/USD as price action is converging into an apex. A declining trendline connecting the September high with the November high held the pair lower this week during the Australian labor data release. To the downside, a rising trendline that connects the mid-January low with the late January low has been providing support and a test on Tuesday was followed by a notable two-day rally. The upcoming week will reveal further detail as to the monetary policy stance of both central banks as the RBA releases minutes from their latest meeting on Monday and the Fed releases minutes on Wednesday.

AUD/USD 4-Hour Chart

AUDUSD 4H Feb 17

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.