Weekly Australian Dollar Technical Forecast: Fresh Highs in Sight for AUD/JPY, AUD/USD

• It may not be the most seasonally friendly time of year for the Australian Dollar, but a prevailing ‘risk-on’ mood in global financial markets is giving a bid to the commodity-linked currency.

• Both AUD/JPY and AUD/USD rates are breaking higher out of recent consolidations, suggesting that near-term technical structure is bullish.

• The IG Client Sentiment Index suggests that the AUD-crosses have different biases.

The first week of May proved a strong start for the trio of commodity currencies, which were the top three performers among the major currencies. Coming in first place, the Australian Dollar was able to post gains against all of its major counterparts, with pairs like AUD/JPY (+1%) and AUD/USD (+1.66%) posting the strongest gains. With the Reserve Bank of Australia now in the rearview mirror and a relatively benign economic calendar due in the days ahead, even though it may not be the most seasonally friendly time of year for the Aussie, a prevailing ‘risk-on’ mood in global financial markets is giving a bid to the commodity-linked currency.

The last time we checked in on the AUD-crosses, it was noted that “AUD/USDs uptrend from the March and November 2020 lows remains impaired, with the mid-March attempt higher failing to recapture the key trendline. But hope springs eternal: it may be the case that a bullish falling wedge is taking shape on the daily timeframe, with support drawn from the early-January high and early-March low, and resistance drawn from the late-February high and mid-March high.”

And while AUD/USD rates did indeed trade higher out of the bullish falling wedge, the month of April yielded little by way of advance or decline, setting up what may be interpreted as a bull flag. Accordingly, the breakout at the end of the week suggests that the period of consolidation has ended, and the prior interpretation of price action coalescing into a bull flag indeed correct. To this end, AUD/USD rates are still in the throes of the aforementioned bullish falling wedge, which eyes a return to the yearly high at 0.8007.

AUD/USD: Retail trader data shows 35.39% of traders are net-long with the ratio of traders short to long at 1.83 to 1. The number of traders net-long is 26.69% lower than yesterday and 27.00% lower from last week, while the number of traders net-short is 0.39% lower than yesterday and 14.74% higher from last week.

We typically take a contrarian view to crowd sentiment, and the fact traders are net-short suggests AUD/USD prices may continue to rise.

Traders are further net-short than yesterday and last week, and the combination of current sentiment and recent changes gives us a stronger AUD/USD-bullish contrarian trading bias.

AUD/JPY rates have maintained their uptrend from the March and November 2020 lows unlike its AUD/USD brethren, but like its counterpart, a bullish falling wedge appears to be the predominant short-term pattern thats guiding price action. With AUD/JPY rates above their daily EMA envelope, which is in bullish sequential order, daily MACD rising while above its signal line, and daily Slow Stochastics achieving overbought territory, bullish momentum is firming. A push to the yearly high at 85.45 (and beyond) is squarely in focus over the coming days.

AUD/JPY: Retail trader data shows 33.56% of traders are net-long with the ratio of traders short to long at 1.98 to 1. The number of traders net-long is 5.06% lower than yesterday and 8.70% higher from last week, while the number of traders net-short is 5.71% lower than yesterday and 6.60% lower from last week.

We typically take a contrarian view to crowd sentiment, and the fact traders are net-short suggests AUD/JPY prices may continue to rise.

Yet traders are less net-short than yesterday and compared with last week. Recent changes in sentiment warn that the current AUD/JPY price trend may soon reverse lower despite the fact traders remain net-short.

Finally, a consideration of positioning in the futures market. According to the CFTC‘s COT for the week ended May 4, speculators flipped their Australian Dollar positioning to net-long with 1,476 contracts, a shift from the 1,410 net-short contracts held in the week prior. Considering how benign positioning is in the future market, there is ample room for the Australian Dollar to embark on a trend without risk of ’overcrowding in the short-term.

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