AUD/USD Technical Outlook Mired By Head-And-Shoulders Formation

AUD/USD appears to be following its New Zealand counterpart as the exchange rate slips to a fresh yearly low (0.7563) in March, and the decline from the February high (0.8007) may turn out to be a change in market behavior rather than a correction in the broader trend as the exchange rate is on the cusp of breaking the neckline of the head-and-shoulders formation.

A measured move of the key reversal pattern brings the 200-Day SMA (0.7373) well within the striking distance as AUD/USD stands at risk of giving back the advance from the December low (0.7338), with the Relative Strength Index (RSI) highlighting a similar dynamic as it continues to track the downward trend from earlier this year.

In turn, AUD/USD may continue depreciate ahead of the next Reserve Bank of Australia (RBA) interest rate decision on April 6 as the central bank relies on its emergency tools to achieve its policy targets, and it seems as though Governor Philip Lowe and Co. will continue to utilize the quantitative easing (QE) program in 2021 as “a further $100 billion will be purchased following the completion of the initial program.”

It remains to be seen if the RBA will adjust the forward guidance over the coming months as the central bank pledges to “not increase the cash rate until actual inflation is sustainably within the 2 to 3 per cent target range,” but the head-and-shoulders formation in AUD/USD has spurred another shift in retail sentiment as traders flip net-long the pair for the second time in March.

Image of IG Client Sentiment for AUD/USD rate

The IG Client Sentiment Report shows 54.55% of traders are currently net-long AUD/USD, with the ratio of traders long to short standing at 1.20 to 1.

The number of traders net-long is 1.27% higher than yesterday and 7.36% higher from last week, while the number of traders net-short is 0.18% higher than yesterday and 11.55% higher from last week. The rise in net-long interest has spurred a flip in retail sentiment as 49.88% of traders were net-long AUD/USD on March 17, while the increase in net-short position comes as the exchange rate struggles to retain the rebound from the monthly low (0.7563).

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