AUDUSD – Volatility Alert: Mind the Gap

It’s been a busy start to the week for AUDUSD after President Trump followed through over the weekend with his promise to impose trade tariffs of 25% on Canada and Mexico, and 10% on China, who is Australia’s biggest trading partner, starting on Tuesday February 4th.

AUDUSD was already under pressure after last Wednesday’s CPI reading showed Australian core inflation to have eased more than expected, which boosted trader expectations for a rate cut from the Reserve Bank of Australia (RBA) when they meet on February 18th and sent the currency back down towards yearly lows, closing on Friday at 0.6210.

Now, the potential escalation of a global tit for tat trade war has boosted the dollar side of the FX pair as concerns filter through around the upside impact this could have on US inflation, which could lead to the Federal Reserve (Fed) pausing rate cuts indefinitely, or in the worst case scenario even having to raise interest rates at some stage down the line.

This led to a gap open to start this week and a sell off to 4 year lows at 0.6087 overnight. However, there has been a rebound as traders await confirmation that the tariffs will be implemented tomorrow, with President Trump due to speak to the leaders of Canada and Mexico later today.

This provides us with a chance to take stock of the recent price action and look at the technical levels that may be relevant, dependent on the next moves in AUDUSD across the rest of the week.

Technical Update: Gap Assessment

The decision by President Trump to impose global tariffs has seen significant volatility for all assets, and within FX not many currencies away from the US Dollar have escaped strong selling pressure.

This has resulted in sharp moves at today’s open, leaving several what are called ‘gaps’ within technical analysis.

Gaps are when an asset opens away from its previous close, which in the case of AUDUSD is a gap lower between Monday’s 0.6087 opening price and last Friday’s 0.6210 close.

There is a common misconception that a Gap must be quickly ‘closed’, in other words, in the case of AUDUSD, the market must rally and trade back to 0.6210, which was Friday’s close, before the next sustainable price movement is seen. This is not true!

A gap can remain ‘open’ within price activity for many days, weeks, or even months.
In fact, there are 3 types of Gap that can materialise, and it is worth looking at these definitions to attempt to establish where the next directional risks lie for AUDUSD.

Breakaway Gap:

This is seen when an asset opens significantly higher or lower away from the previous close and often develops at the start of a new trend. This can materialise after a reversal or a continuation pattern in price, and reflects that traders are now looking for a sustained move in the direction of the Gap break.

In AUDUSD, it is possible the latest Gap lower forms a Breakaway gap, although this will depend on confirmation from future price trends. It has materialised after a price consolidation between mid-December to late January.



This may be an indication of a resumption of the downtrend channel evident in the chart above, a move that has been in place since the September 2024 highs.

Continuation Gap:

This is a Gap higher or lower in price, and highlights a continuation of the on-going trend, as traders are keen to establish new trades or increase positions, which suggests the trend may remain.

For AUDUSD, it is also possible recent price action could suggest a continuation of the downtrend channel, with the risks of tariffs from the US, adding to the negative sentiment, maintaining the channel.

Exhaustion Gap:

This is mainly seen at the end of a market trend and reflects the final phase of selling/buying pressure within that trend.

This can mark the potential end or even reversal of a trend, where buying or selling has been exhausted, with positioning perhaps then skewed too far in the direction of the trend. It is at this point that the potential of a reactive move or reversal in price may be greater.

While this is no guarantee of future price action, with the latest Gap lower in AUDUSD coming after a sideways consolidation, we would question if the latest activity suggests an exhaustion Gap, but time and further price action will help us to gauge this further.

So, where does this leave the latest AUDUSD activity, and what can it tell us about future potential price moves?

Just because a Gap lower has been seen within AUDUSD this morning, doesn’t mean this necessarily fits within the 3 Gap rule. However, we will watch price activity closely from here to suggest where the next directional risks might lie.

What if Further Downside is Seen?



Having so far rallied from this mornings 0.6087 low, this level may now be viewed as support; buyers have been found here and may well be found again. However, breaks below 0.6087, if seen, may lead to a more extended phase of price weakness.

If this is the case, it might in time lead to price weakness towards the next potential support at the lower limits of the downtrend channel, which currently stand at 0.5980.


What If Price Strength Emerges?

A failure to extend the current weakness may see a recovery in price, but what could be resistance at higher levels?



The first resistance level may prove to be the actual Gap left from Friday’s 0.6210 close, where sellers having missed the opportunity to sell at this level previously, may be tempted to do so again.

However, breaks above the 0.6210 level may suggest a more extended phase of price recovery, with the next resistance level possibly being, 0.6227, which is the Bollinger mid-average, and above there the 0.6284 level, which marks the current level of the downtrend channel upper extremes.


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