ICARUS EXCLUSIVE : Aussie Dollar Bullish Across the Board. Will USD Weakness Continue to Support Trend

As USD monetary and fiscal policy continues to flood the US and global economies with freshly minted USD, the steadily weakening currency has continued to support its cross currencies, such as the Australian Dollar.

As we’ve reported in recent weeks, the pervasive theme of Modern Monetary Theory has seen the ‘race to the bottom’ game being played in earnest by all major ‘currency floaters’, albeit to differing degrees. The US certainly takes the cake, with TRILLIONS of stimulus dollars hitting markets like a tsunami.

Aussie Dollar finding resistance at levels previously rejected, and multi-month highs
Aussie Dollar (AUD/USD) finding resistance against previously rejected levels.

The chart above includes a range of price levels identified via the Icarus Supports_Resistance Indicator. The alternate timeframes are outlined by corresponding alternate colours of horizontal support and resistance levels.

We can clearly see the reaction of price at these levels, and as we approach 0.7220, it is clear sky north, as the strength of AUD is reflected in both weakening DXY (USD Dollar Index) broadly, combined with expectations (we believe, erroneously) of improved economic conditions supporting the Australian currency as a proxy for global economic activity.

The 1Hour Chart above shows a range of confirming factors, suggesting probability of a continued move higher for the AUD/USD pair.

The IcarusOscillator(TM) is showing a continued positive trend, with the oscillator curve itself demonstrating higher highs and higher lows. The lack of confirming dots (blue, across the horizontal axis) weakens the supporting element slightly, although the resistance level of 0.7220 is our primary point of interest. The 4 Hour chart below, with identical IcarusOscillator inputs confirms the longer-term trend is in place, with confirming strength dots (blue) displayed and highlighted within the black box for easy reference.

Although shorter timeframes suggest a range of confluences to support a move higher, we note the strength of the Daily chart is waning.

A range of elements suggest caution is required at this point, with any test of higher levels likely to be met with heavier selling and downward pressure, before any consolidated move higher. Another intriguing element to consider is the AUD/USD inverse correlation to VIX. With the Aussie being seen as a proxy for economic strength, we wonder if the compressed VIX levels suggest there’s some resistance ahead for AUD.

Chart created by @RichDvorakFX with TradingView

We can see some elements that may support this by considering the following elements on the Daily chart, despite a stronger trend higher on shorter timeframes.

  1. The Icarus Oscillator is showing a downtrend, or weakness in continued strength higher, with blue confirming dots suggesting an increased strength of sellers
  2. The Icarus Bolli-Bands have begun to shade in orange/salmon, identifying a contraction of the band widths
  3. A heavy clustering of horizontal resistance generated by the automated Icarus SupportResistance Levels

The chart below from the team at Koyfin gives readers the opportunity to view the performance of the DXY (USD Index), demonstrating a clear and unrelenting down-trend, with little resistance until several points lower.

The team at DailyFX have put together a great analysis of the AUD’s performance, and some guidance as to possibilities for the coming trading periods, with a particular focus on some of the other AUD currency spreads for added perspective. Read the full article here

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