- AUD/USD reversal from weekly resistance in focus- risk is lower sub-84.25
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The Australian Dollar has plummeted more than 9% off the yearly highs (nearly 6% year-to-date) with the decline now approaching initial support targets of interest. While the immediate risk remains lower in the Aussie, we’re on the lookout for near-term exhaustion in price. These are the updated targets & invalidations levels that matter for AUD/USD.
AUD/USD Daily Price Chart
Technical Outlook: In last week’s Technical Perspective on the Australian Dollar, we revisited the Aussie setup we’ve been track since the start of the month after price pulled back from the 2016 trendline. We noted that, “From a trading standpoint, the immediate threat may still be higher for the Aussie in the days ahead but ultimately I’ll favor fading strength closer to structural resistance.”
That tuned out to be the high with the subsequent reversal breaking below the monthly opening-range to fresh yearly lows. The next daily support target of interest rests at the 61.8% retracement of the entire 2016 advance at 7327 with parallel support just lower around ~7290s.
Initial resistance stands at the former yearly lows at 7412 backed by the May low-day-close at 7456. Ultimately a breach above the 7514 would be needed to alleviate further downside pressure (bearish invalidation).
AUD/USD 240min Price Chart
Notes: A closer look at AUD/USD price action highlights the turn from confluence resistance last week at 7670/89. Note that intraday RSI remains in deep in oversold territory and leaves the risk lower while below the May low at 7412.
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Bottom line: The downside is getting risky here near-term with upcoming support targets likely to offer some back-and-fill. From a trading standpoint, look to adjust any short exposure heading into these lower targets and be on the lookout for possible exhaustion. I would favor fading a failed break below the lower parallel but we would need to see some momentum conviction on the turn. A downside break of slope support would keep the focus lower with such a scenario targeting subsequent objectives down at 7230. Event risk is rather limited heading into the close of the week so stay close to price action.
For a complete breakdown of Michael’s trading strategy, review his Foundations of Technical Analysis series on Building a Trading Strategy
AUD/USD IG Client Positioning
- A summary of IG Client Sentiment shows traders are net-long AUD/USD- the ratio stands at +2.11 (67.8% of traders are long) –bearishreading
- Traders have remained net-long since June 5th; price has moved 3.8% lower since then
- Long positions are 2.2% lower than yesterday and 17.1% higher from last week
- Short positions are4.9% lower than yesterday and 30.6% lower from last week
- We typically take a contrarian view to crowd sentiment, and the fact traders are net-long suggests AUDUSD prices may continue to fall. Traders are further net-long than yesterday and last week, and the combination of current positioning and recent changes gives us a stronger AUDUSD-bearish contrarian trading bias from a sentiment standpoint.
See how shifts in AUD/USD retail positioning are impacting trend- Learn more about sentiment!
Relevant AUD/USD Data Releases
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- Written by Michael Boutros, Currency Strategist with DailyFX
Follow Michael on Twitter @MBForex or contact him at email@example.com