"Head and Shoulders Bottom" Pattern is Emerging

Summary:

The AUDUSD attracted some follow-through buying on Tuesday and climbed to a near two-week high during the European session. The AUDUSD was supported by expectations of a 50 basis point rate cut from the Federal Reserve and a positive risk tone that weakened the US dollar. Investors are looking forward to more economic data and events to provide some impetus.

BUY AUDUSD

EXP

EXPIRED

0.67150

Entry Price

0.68800

0.66400

0.70704 -0.00196 -0.28%

Pips

EXPIRED

0.66400

0.68911

Exit Price

0.67150

Entry Price

0.68800

Fundamentals

On Tuesday, the AUDUSD rose for the fourth consecutive trading day, reaching its highest point in a week and a half during the European session. Currently, the spot price is trading around 0.6700, reflecting an increase of approximately 0.16% for the day. Investors are now anticipating the release of U.S. economic data later today and the outcomes of the two-day FOMC meeting on Wednesday to seek new directional catalysts.

Ahead of these key data releases, the US dollar solidified its recent declines, retreating further to its lowest level since July of last year at 100.51, as the market bets on a significant rate cut of 50 basis points by the Fed. Coupled with the Reserve Bank of Australia's (RBA) hawkish outlook and a generally positive tone among Australian dollar bulls, this has become a pivotal factor supporting risk assets (the Australian dollar) and providing some backing for the AUDUSD.

With the emergence of fresh upward momentum signals, the spot price has now rallied above 0.6700 from near the crucial 200-day SMA, aligning closely with the recent four-week lows. Moreover, the fundamentals appear to favor bearish sentiment towards the US dollar, indicating that the path of least resistance for the AUDUSD is upward. Nevertheless, concerns surrounding deflation in the Chinese economy may pose ascending resistance.

The series of pessimistic data released over the weekend indicates that the Chinese economy is likely to experience further weakness, posing greater challenges to achieving the officially set annual growth target of 5%. This, in turn, may create headwinds for the Australian dollar, which is often driven by the performance of the Chinese economy. Consequently, investors are inclined to await more guidance regarding the Fed's interest rate cut trajectory, exercising caution before seeking new bullish positions.

The upcoming U.S. monthly retail sales figures, along with the 10-year U.S. Treasury yields and broader risk sentiment, are expected to provide fresh impetus for the AUDUSD. Meanwhile, the market's response to U.S. macroeconomic data could influence the Fed's policy decisions.

"Head and Shoulders Bottom" Pattern is Emerging_1

Technical Analysis

The US dollar faced renewed selling pressure on Tuesday, which provided momentum for risk assets such as the Australian dollar. This allowed the AUDUSD to recover the threshold of 0.6700 or above.

Currently, the bulls have surpassed the key neckline of the "head and shoulders bottom" pattern at 0.6767. If it falls and forms the right shoulder, the potential for further upward movement remains, provided that the price does not fall below the left shoulder at 0.6686. A subsequent test of the 0.6823 level is expected. However, on the downside, a sustained break of the 38.2% retracement level between 0.6348 and 0.6823 would target the 61.8% retracement at 0.6529.

From a broader perspective, the price trend from the low of 0.6169 in 2022 is regarded as a medium-term corrective pattern, with the ascent starting from 0.6269 marking the third adjustment phase. A solid break above the resistance zone at 0.6870 would aim for the resistance level at 0.7156. In the event of another decline, strong support is expected at 0.6361 to bring about a rebound.

Trading Recommendations

Trading Direction: Buy

Entry Price: 0.6715

Target Price: 0.6880

Stop Loss: 0.6640

Deadline: October 2, 2024 23:55:00

Support: 0.6712, 0.6697, 0.6643

Resistance: 0.6795, 0.6823, 0.6838

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