- AUD/USD slides and fails to build on Monday’s gains, in a trading session marked by some risk aversion and moderate U.S. dollar strength
- Despite Tuesday’s subdued performance, AUD/USD seems to be in the process of forging a double bottom
- This article looks at Aussie’s key technical levels to watch in the coming days
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The Australian dollar was muted on Tuesday, unable to consolidate Monday’s gains in a trading session marked by risk aversion and moderate U.S. dollar strength. Despite Tuesday’s subdued performance, AUD/USD seems to be in the process of forging a double bottom, which normally tends to presage the exhaustion of selling pressure prior to a rebound.
To delve into more detail, a double bottom is a reversal pattern that consists of two similar troughs separated by a crest in the middle that often emerges in the context of an extended downtrend. Confirmation of this bullish configuration occurs when the asset in question completes the “W” shape and breaks above neckline resistance, defined by the intermediate peak.
To assess the potential extent of the price increase following the validation of the double bottom, traders can project its height vertically from the point of breakout. This estimation offers a practical approximation of the expected move’s magnitude, offering valuable guidance when considering trading strategies and risk management.
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How to Trade AUD/USD
Zooming in on the specific case of AUD/USD, neckline resistance currently lies at 0.6500/0.6510. If the pair manages to take out this barrier in a clean and decisive manner, it could spark increased buying momentum, paving the way for a climb beyond the psychological 0.6600 level.
For more robust confirmation signals, it’s crucial to examine volume data. In this context, low-volume activity during the formation of the second bottom, followed by a surge in volume during the breakout, serves to reinforce the pattern’s bullish bias.
On the flip side, if sellers reassert themselves and push prices lower, support is seen at 0.6360. Downside clearance of this floor would nullify the double bottom, creating the right conditions for a drop towards 0.6275. On further weakness, the focus shifts to 0.6170.
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