- Australian Dollar rebounds from confluence support- Shorts at risk while above 6733
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The Australian Dollar reversed sharply against the US Dollar yesterday after failing to break confluence support with the subsequent recovery now targeting initial resistance targets. These are the updated targets and invalidation levels that matter on the AUD/USD charts heading into the close of the week. Review this week's Strategy Webinar for an in-depth breakdown of this oil price setup and more.
Aussie Price Chart – AUD/USD Daily
Technical Outlook: In my latest AUD/USD Weekly Price Outlook we noted that Aussie had, “reversed from confluence downtrend resistance last week and leaves AUD/USD at risk for steeper losses. From at trading standpoint, look to reduce short exposure / lower protective stops on a move into channel support.” Price probed through confluence support at the lower parallel at 6733/45 yesterday before reversing sharply to close back above.
The broader short-bias is vulnerable near-term while above this threshold with daily resistance eyed close by at the 38.2% retracement / 2016 low at 6828/32 and the monthly open / 2016 low-week close at 6845/55- ultimately a breach above 6910 would be needed to suggest a more significant low was registered yesterday. A break / close below 6733 would b needed to mark resumption with such a scenario once shifting the focus back to the lows at 6677 and beyond.
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Aussie Price Chart – AUD/USD 120min
Notes: A closer look at AUD/USD price action shows Aussie testing confluence support at the lower parallel with a false break giving way to a breach above this tight embedded descending channel formation extending off the July highs. The advance is now testing a breach of the weekly opening-range – a topside break would keep the breakout trade viable targeting 6828/32 backed by 6845/55. A breach above the median-line would be needed to fuel the next leg higher. Interim support & near-term bullish invalidation now back at 6733/45.
Bottom line: Aussie rebounded off big support this week and we’re looking for a reaction on a stretch higher into resistance for guidance. From at trading standpoint, look for exhaustion on a pullback while above 6745 for possible entries with a breach above 6855 needed to suggest a larger recovery is underway. IF price holds a test of the median-line on push higher, look for support ahead of the weekly open at 6792 for the Aussie advance to remain viable.
For a complete breakdown of Michael’s trading strategy, review his Foundations of Technical Analysis series on Building a Trading Strategy
Aussie Trader Sentiment
- A summary of IG Client Sentiment shows traders are net-long AUD/USD - the ratio stands at +3.25 (76.5% of traders are long) – bearish reading
- Traders have remained net-long since July 19th; price has moved 3.6% lower since then
- Long positions are 1.8% higher than yesterday and 2.4% lower from last week
- Short positions are 16.4% higher than yesterday and 1.0% lower from last week
- We typically take a contrarian view to crowd sentiment, and the fact traders are net-long suggests AUD/USD prices may continue to fall. Yet traders are less net-long than yesterday and compared with last week. From a sentiment standpoint, the recent changes in positioning warn that the current AUD/USD price trend may soon reverse higher despite the fact traders remain net-long.
See how shifts in AUD/USD retail positioning are impacting trend- Learn more about sentiment!
Relevant Australia / US Data Releases
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- Written by Michael Boutros, Currency Strategist with DailyFX
Follow Michael on Twitter @MBForex