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- The AUD/USD pair is revealing its bullish leg within a range near its highs.
- If it reaches higher highs, the pair may reverse and start moving south, extending the sideways trend.
- A clear breakout above the highs or lows will be needed to give the pair direction again.
AUD/USD is trading around half a percent higher at 0.6660 levels on Friday, as the pair continues to rise after bouncing from the lows recorded on May 24.
It is possible that the pair has entered a sideways trend and since “the trend is your friend” this limited market situation is likely to extend. The range in which the Australian dollar finds itself trading appears to have reached a high on May 26 of 0.6680 and a floor of 0.6591 (low of May 30).
4-hour chart of AUD/USD
The current leg up within the range could reach the range ceiling at 0.6680 before reversing and starting to fall to the range floor.
The Moving Average Convergence Divergence (MACD) Momentum indicator crossed above the red signal line, giving a buy signal and supporting the upward movement.
If AUD/USD reaches or near the tops of the range, it then rolls over and forms a Japanese pattern candlestick This reversal pattern may be a signal that the pair is extending its sideways trend and that a downtrend is about to begin.
A MACD crossing below the signal line – especially if it is in positive territory – would add more evidence indicating a move down within the narrow range.
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The AUD/USD pair broke out of its rising channel on May 22, putting the established uptrend in doubt. However, the downward follow-through was weak, and the pair quickly found its feet. There is no clear trend in the short term which suggests that the trend may actually be sideways.
It would take a decisive break below 0.6591 to confirm further downside, with the next target potentially at 0.6560 where the 100 and 50 day SMAs lie (not shown).
Alternatively, a decisive break above the range ceiling would reconfirm the bullish bias and possibly lead to 0.6714 (May 14 high).
Decisive breakouts are accompanied by long candles that break through the level and close near its high or low, or three consecutive candles that break through the level in question and are all of the same color (red for a bearish decisive break and green for a bullish one).
