AUD/USD bears haven't been crowded out yet

AUD/USD             bottomed out in Jan along with oil             and recovered to 0.7835 levels. The sharp rise from January forced investors consider a possibility that a long term bottom may have been in place.

However, monthly chart tells us, there is still another leg down pending -

  • Head and Shoulder breakout gave us a downside target of 0.6460, but the pair turned higher from 0.6827 (near 2004 low), So the target is yet to be achieved.
  • Plus, plotting waves shows us the fourth wave correction may come to an end around the falling trend line resistance.
  • A rejection/failure to take out the falling trend line would signal the 5th wave lower has begun.
  • As per wave rules, when the third wave is extended, the fifth wave usually matches the first wave in magnitude/duration.
  • So wave 5 can take us down to 0.5668 by late mid-2018 (assuming it begins in next two months). This is because wave 1 led to a drop of 2232 pips during the time period of July 2011 to Aug 2014.

Fundamental also indicate there is still juice left in the bearish view as -

  • China rebalancing is far from done.
  • Oil may have recovered, but base metals (& iron ore) are have little hope unless China rebalances (as that will help fuel export powerhouses across the globe and thus improve demand for metals).
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