Forex Opinion & Analysis

AUD/USD Can Surge 25% Over the Next Year

More than four years ago, we wrote that there was a “bearish omen” on the historical chart of AUD/USD. There was a complete 5-3 Elliott Wave cycle spanning nearly half a century starting in 1973 when currencies began floating freely against each other. And since the impulsive part of the cycle pointed south, it made sense to expect more weakness. AUD/USD was hovering above 0.7600 at the time, in April, 2018.

And indeed, AUD/USD is currently trading near 0.6800, down by over eight figures in four and a half years. During the Covid-19 panic of March, 2020, the pair barely held above 0.5500. Yesterday, one of our EW PRO subscribers asked about it, so we thought it was time for an AUD/USD update. Here it is.

AUD/USD (1971-2022)

In the first three decades of free-floating exchange rates, AUD/USD fell from roughly 1.5000 to under 0.4900. What is interesting is that this bear market took the shape of a five-wave impulse, marked (I)-(II)-(III)-(IV)-(V). The five sub-waves of wave (III) are also visible, while wave (V) is an ending diagonal. In accordance with the Elliott Wave theory, this impulse was followed by a three-wave corrective recovery of similar magnitude.

With the exception of the 2008 Financial Crisis, AUDUSD spent the next decade on a positive note. The pair exceeded the 1.1000 mark in 2011, drawing a simple (A)-(B)-(C) zigzag correction in the process. Wave (B) is best counted as an A-B-C expanding flat correction. How did the market know to find resistance in the face of the 61.8% Fibonacci level relative to an impulse that began 40 years ago is a mystery to us. Nevertheless, it did, giving the start of the pair’s next bear market. Which brings us to the weekly chart below.

AUD/USD Weekly Chart

The decline from 1.1080 in 2011 to 0.5509 in 2020 is another five-wave structure, labeled I-through-V in wave (I). Two lower degrees of the trend can be recognized within wave III. And once again, a corrective recovery appears to be in progress in wave (II). So far, it seems we’ve only seen its first two waves, A and B, which means AUDUSD can be expected to keep rising in wave C.

Wave C is supposed to exceed the top of wave A, putting targets between 0.8000 and 0.9000 within the bulls’ reach. From the current level of 0.6800, that would be a rally of 18% to 32% or 25% at midpoint. Not bad for a currency rate. But let’s dig deeper and take a look at the daily chart below.

AUD/USD Daily Chart

The daily graph of AUD/USD clearly show that the surge from 0.5509 to 0.8007 is an impulse pattern, marked (1)-(2)-(3)-(4)-(5) in wave A. The following choppy and overlapping decline to 0.6170 is best viewed as a (w)-(x)-(y) double zigzag, whose wave (x) is an expanding flat. Wave ‘b’ of (y) is a triangle correction. If this count is correct, wave B down is officially over and wave C up has begun. More upside makes sense in the months ahead.

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