US DOLLAR INDEX (DXY) MONTHLY CHART – CYCLICAL DOWNTURN AFOOT

The chart above highlights the cyclical pattern seen in the US Dollar Index over the past 34 years, with the DXY largely adhering to what appears to be a 16-year rotation. The index set significant bottoms in 1992 and 2008.

After bottoming out, price then seems to rebound aggressively early in the cycle, soaring 24.1% and 26.8% in 1993 and 2009 respectively, before pulling back to key support at the 88.6% Fibonacci.

A 6-year period of sustained USD strength follows this counter-trend pullback, with price climbing 50.1% from the 1995 low and 42.8% from the 2011 low, to set key highs in 2001 and 2017.

Bearish RSI divergence in late 2002 seemed to signal the end of the US Dollar’s bull run and triggered a shift in overall market sentiment, as price collapsed through uptrend support and fell 41.6% to eventually bottom in March 2008.

Recent price action and the development of the RSI is strikingly similar to that seen in the fourth quarter of 2002 and could be indicative of further downside for the DXY, as price carves out a Bear Flag continuation pattern after breaking below the uptrend extending from the 2011 low.

To that end, the haven-associated currency could be poised to drastically extend its recent declines against its major counterparts, with cycle analysis suggesting USD could fall a further 30% from current levels before bottoming out in mid-2024.

AUD/USD WEEKLY CHART – BREAK OF LONG-TERM RESISTANCE HINTS AT TOPSIDE PUSH
AUD/USD rates appear poised to continue moving higher, as price forms a bullish Outside Week candle above key support at the psychologically imposing 0.70 level.

With the RSI eyeing a push above 60 and the MACD gearing up to cross above its ‘slower’ signal line counterpart, the path of least resistance seems higher.

A weekly close above the September high (0.7413) would probably generate a test of the 78.6% Fibonacci (0.7573) and possibly carve a path towards the 2018 high (0.8136).

On the contrary, a breach of support at the 200-MA (0.7207) could open the door to a more significant pullback and bring the November low (0.6991) into play.

AUD/USD DAILY CHART – SERIES OF DOJIS HINT AT EXHAUSTION
Jumping into a daily chart however, suggests AUD/USD may slide lower in the near term as a series of Doji candles just shy of resistance at 0.7300 indicate that the surge from the monthly low (0.6991) could be running out of steam.

Nevertheless, with price breaking above the Descending Triangle hypotenuse and travelling firmly above all four moving averages, any pullback may prove to be a mere counter-trend correction.

Therefore, AUD/USD could test the yearly high (0.7413) in the coming days if price remains constructively positioned above the 21-DMA (0.7176), with a daily close above 0.7450 probably propelling price towards the 78.6% Fibonacci (0.7573).

On the other hand, a break below the 50-DMA (0.7157) would probably open the door to test key support at the November low (0.6991).

Reference by: Daniel Moss, Analyst for DailyFX