AUD bounces strongly in line with US equity’s jump

The US indices pumped higher as holders of shorts had to close their positions which resulted in one of the strongest sessions in recent months. The US dollar finally dropped back down, and it gave the AUD some much needed relief and is showing some potential of a short-term reversal.

The question remains, whether this bounce will hold, or whether it is a bull trap and will continue to drop. With more economic data still to come, including retail figures from the USA to come out tonight volatility will likely remain. In addition, with slowing growth the AUD may still face some headwinds as it looks to claw its way back up against the USD.

The potential reversal is most clear on the weekly price chart. Firstly, the weekly candlestick looks like it will close as a bullish pin bar. The candlestick can be indictive of a reversal because it shows how buyers have been able to absorb all the selling and push the price back near its weekly open price. It essentially shows how the selling has been exhausted. In addition, with such a long wick and a small body it is a stronger sign of a reversal. The other encouraging sign is the level of volume supporting the reversal is significant.

The daily chart provides some more indication about potential targets in the short term. With a 2:1 Risk reward the first price target is at 0.6684 AUD, with a stop loss placed just below the recent wick at about 0.6160 AUD. If this first target gets hit, then it the price may push higher towards $0.70 AUD. This potential buying opportunity on the AUDUSD is a counter trend trade and therefore does bear some level of risk.

Ultimately, with such aggressive selling on the pair, when it does decide to reverse, it may be swift and sharp. Although, caution and proper risk management practices still needs to be had in such volatile conditions.