What will it take for AUD/USD buyers to break the mould?

Is this where the Australian dollar makes its stand against the US dollar?

For starters, breaking back above the resistance region around 0.7150 will be a vital first step. Right now, price is trading at the highs for the day as it runs into the test of the region. The October high @ 0.7160 is within reach and hold a break above that will be a good sign for buyers as the squeeze to the upside gains further traction.

I've mentioned before that AUD/USD has very much been a case of one step forward, two steps back for the aussie. Or in technical analysis talk, we're looking at a pattern of lower highs, lower lows for the pair. That makes for an easy bearish setup and selling rallies the whole year.

So, what will it take for buyers to change the picture?

As mentioned above, getting above 0.7150 is a good first step but it would require a break back above the September high of 0.7315 to confirm a break of the pattern. Although, a move towards the 100-day MA (red line) will also pose a serious threat to the downside pattern as price has not tested the level since breaking below it in April.

The fundamental picture for the pair hasn't really changed. All we're doing now is adding in the risks to the dollar from the US midterms to come next week. But that is proving to be enough for a short squeeze to take place.

As highlighted earlier, aussie short positions are at its most stretched as it's ever been in the past 10 years. That warrants some consideration for a retracement/correction particularly when buyers have struggled to break below 0.7000 for the past one month.

Relief rallies like these in general don't last too long but when they hit, they sure hit hard because markets are basically caught wrong-footed (positioned on the other side). That's the kind of stuff that we as retail traders need to be wary of.

There's a time and place to be follow what the train conductor (fundamentals) is saying. But when the train itself (price action) is moving away from the direction you intend it to go, you either hop off (exit trade) or re-route your destination (change sides).

Right now, I'll be looking towards the close and if price can hold a break of 0.7150 at the end of the day, I'm anticipating a further squeeze in the pair to come. The only iffy thing I have with this is how markets have quickly shrugged off jitters in equities so soon. If stocks start slumping again later today, it's going to muddy up the trading picture by a whole lot.