AUD/USD Rate Outlook Hinges On Looming RSI Signal

  • Keep in mind, the advance from the 2020 low (0.5506) gathered pace as AUD/USD broke out of the April range, with the exchange rate clearing the January high (0.7016) in June as the Relative Strength Index (RSI) pushed into overbought territory.
  • AUD/USD managed to clear the June high (0.7064) in July even though the RSI failed to retain the upward trend from earlier this year, with the exchange rate pushing to fresh yearly highs in August and September to trade at its highest level since 2018.
  • The RSI instilled a bullish outlook for AUD/USD during the same period as it threatened the downward trend from earlier this year to push into overbought territory for the fourth time in 2020, but a textbook sell-signal emerged as the indicator quickly slipped back below 70.
  • The RSI established a downward trend in September as the indicator fell to its lowest level since April, but the bearish momentum has abated as the indicator failed to push into oversold territory to reflect the extreme readings seen in March.
  • As a result, the correction from the September high (0.7414) proved to be an exhaustion in the bullish trend rather than a change in behavior as AUD/USD cleared the October high (0.7243) in November, with the exchange rate trading to fresh yearly highs in December.
  • Looming developments in the RSI may show the bullish momentum gathering pace as the indicator flirts with overbought territory for the first time since September, with a break above 70 likely to be accompanied by a further appreciation in AUD/USD like the behavior seen earlier this year.
  • Still need a close above the 0.7440 (23.6% expansion) to 0.7480 (50% expansion) region to open up the Fibonacci overlap around 0.7560 (50% expansion) to 0.7580 (61.8% expansion).
  • However, lack of momentum to hold above the 0.7370 (38.2% expansion) to 0.7390 (38.2% expansion) area may bring the 0.7270 (23.6% expansion) region back on the radar, and the RSI may warn of a larger pullback in AUD/USD if the oscillator fails to retain the upward trend carried over from November.
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