Introduction:
The Australian Dollar and United States Dollar currency pair, also known as AUD/USD, has been in focus lately as bears return to the table. The pair has dropped to 0.6680 amid early Tuesday morning in Europe, after an upbeat start to the week. This article will explore the short-term rectangle formation that the risk barometer is currently within, as well as what it means for traders.
Understanding the Short-Term Rectangle Formation:
Since last Friday, the AUD/USD pair has been within a short-term rectangle formation that comprises multiple levels. The rectangle formation is a chart pattern that is characterized by two parallel trendlines, where the top and bottom of the pattern are horizontal. In this case, the rectangle formation is short-term, meaning that it will likely be resolved in the near future.
The rectangle formation is significant because it is a consolidation pattern. This means that the pair is trading within a narrow range, as buyers and sellers are both present in the market. This can be seen by the steady RSI (14) line that is below the median line of late. As a result, the rectangle formation indicates indecision in the market and can lead to a breakout in either direction.
Implications for the Risk Barometer:
The AUD/USD pair is considered a risk barometer, as it is highly correlated with global risk sentiment. When investors are feeling optimistic about the economy, they tend to buy riskier assets such as the Australian dollar. Conversely, when investors are feeling pessimistic, they tend to sell riskier assets and buy safe-haven currencies such as the US dollar.
Currently, the risk barometer remains within the short-term rectangle formation, indicating indecision in the market. This suggests that investors are unsure about the direction of the economy and are taking a wait-and-see approach. It is important to note that the rectangle formation can lead to a breakout in either direction, and traders should be prepared for a sudden shift in market sentiment.
Conclusion:
In conclusion, the AUD/USD pair is currently within a short-term rectangle formation that indicates indecision in the market. This is significant for the risk barometer, as it suggests that investors are uncertain about the direction of the economy. Traders should be prepared for a sudden shift in market sentiment and monitor the rectangle formation closely for a breakout in either direction.
