Dear Traders,

The AUD/USD lost a lot of ground over recent weeks. The short to medium-term outlook does not look good for the AUD. Today’s analysis will take a look at the recent price action from a wave pattern perspective.

Diagonal Speaks of Bearish Pressure

The AUD/USD created an unusual-looking price path since the high of late January 2018. It does not fit into a corrective pattern very well. A bearish triple zigzag into the Mar 29 low does not make sense, given that price broke lower afterwards. The best fit for the move from January high into Mar 29 low is a very large leading diagonal. This structure would imply significantly more downside ahead. So the move does not appear to be a correction of the previous uptrend, but points towards the scenario that the bullish swing during Dec and January 2017/2018 was probably the end of a long-term correction.

Leading diagonals only appear in the position of wave A or 1. Both cases require a large impulse to the downside in Wave C or 3, to match the size of the leading diagonal. Price action of the last few days has given us a taste of this impulsive move, which also pierced through an important weekly chart support trend line (white). Downside continuation seems therefore very likely because the bearish fall since Apr 19 is still far too small in relation to the diagonal structure. If this analysis is correct, we could see levels below 0.70 for the AUD/USD eventually. The outlook becomes very bearish if price can break below 0.75, which was the start of the previous bullish swing.

All the best along your trading journey

Hubert

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