AUD/USD Price Analysis: Descending channel resistance to cap recovery from two-year low

• AUD/USD staged a goodish bounce from a two-year low and snapped a two-day losing streak.
• Recession fears, Fed rate hike bets should underpin the USD and cap the risk-sensitive aussie.
• A three-week-old descending channel also points to a well-established short-term downtrend.

The AUD/USD pair once again showed resilience near the 0.6765-0.6760 area and staged a goodish bounce from over a two-year low set this week. Spot prices extended the steady intraday ascent through the early part of the European session and climbed to the 0.6830-0.6835 area, reversing weekly losses.

Upbeat Australian trade balance data, along with recovery in iron ore prices, offered some support to the resources-linked aussie. Adding to this, a slight improvement in the risk sentiment prompted some profit-taking around the safe-haven US dollar and benefitted the risk-sensitive Australian dollar.

That said, growing fears about a possible global recession should keep a lid on any optimistic move in the markets. Apart from this, the prospects for more aggressive Fed rate hikes should act as a tailwind for the greenback and further contribute to capping the AUD/USD pair, at least for the time being.

From a technical perspective, the recent downfall since mid-June along a downward sloping trend channel points to a well-established short-term bearish trend. Hence, any subsequent move up is more likely to meet with a fresh supply near the top end of the said channel, currently around the 0.6865 area.

This is closely followed by the 0.6900 mark, which coincides with the 100-period SMA on the 4-hour chart. Some follow-through buying would suggest that the AUD/USD pair has formed a bottom and trigger an aggressive short-covering move, which should lift spot prices towards the 0.6955-0.6960 supply zone.

On the flip side, the 0.6800 round figure now seems to protect the immediate downside ahead of the 0.6765-0.6760 area. Failure to defend the said support levels would make the AUD/USD pair vulnerable to slide further, towards challenging the ascending channel support, currently around the 0.6715-0.6710 area.

A convincing breakthrough the latter, leading to a subsequent fall below the 0.6700 mark would be seen as a fresh trigger for bearish traders and pave the way for additional losses. The AUD/USD pair might then accelerate the fall towards the next relevant support near the 0.6655-0.6650 region.

AUD/USD 4-hour chart

Key levels to watch