AUD/USD: Constructive buy-side structure (H&S formation)

Cycles & Levels: The weekly is in an unambiguous downcycle, with the 100% fib projection not coming until circa 0.69. The relevance of the major round number at 0.70 makes the completion of the target a challenge. The daily cycle appears to be carving out a potential double bottom following the major absorption as per last Friday’s bullish reversal candle. The speed of the latest cycle down was very convincing in nature, even if it fell short in terms of magnitude compared to the previous one (290 pips in Aug vs 269 in Oct), which may reinforce the credence for buyers to keep stepping in. If a recovery continues its course, the next target would include the recent high at 0.7160, ahead of the 50% fib retrac ahead of the descending trendline. On the hourly, the H&S structure is evolving, with intraday traders presented with a potential opportunity to engage in the retest of the 2nd shoulder. In terms of cycles, the recovery last Friday was impulsive and aggressive, but the failure to take out previous highs makes this market to still be considered as range-bound, so remain cautious.

Correlations & Volumes: The latest 24h of price action was far from supportive for the interest of the Aussie, as gold pulled-back in response to USD strength, which is also making the yuan cheaper against the likes of the USD (a big level at 7.00). Similarly, the Aussie vs US 5-yr yield spread also came under mild pressure. The antipodean currency is going to be directly relying on these correlations to pick up further upside momentum. As the sequence of tic volumes stand, the bullish view remains completely valid as the dynamics have shifted to greater volume activity to the upside vs a correction in lower volumes, so that should support the pair. Remember, last Friday’s POC got trapped lower.

Drivers & Risk Events:The pair is trading as a function of DXY and EM performance, ruling out equities volatility. Building approvals are the only risk event for theAustralian Dollar in the next 24h, while in the US we get the CB consumer confidence.