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AUD/USD Stuck in Holding Pattern; NZD/USD Bearish Pattern Persists

AUD/USD Stuck in Holding Pattern; NZD/USD Bearish Pattern Persists

David Song, Strategist

Talking Points:

- AUD/USD Outlook Mired by Triangle/Wedge Formation; Wait-and-See RBA on Tap?

- NZD/USD H&S Formation Continues to Take Shape- 0.7200 Remains Key.

DailyFX

Currency

Last

High

Low

Daily Change (pip)

Daily Range (pip)

AUD/USD

0.7654

0.7687

0.7645

13

42

AUD/USD Daily

AUD/USD Daily Chart

Chart - Created Using Trading View

  • Even though AUD/USD outperforms against its commodity bloc. counterparts, the pair may continue to face a narrowing range in the month ahead as it remains stuck in the triangle/wedge formation from earlier this year, while the Relative Strength Index (RSI) preserves the bearish formation from late-June; need a break of trendline resistance in both price & the oscillator to favor a bullish outlook as especially as the aussie-dollar appears to have made a failed run at the September high (0.7732).
  • Under Governor Philip Lowe, it seems as though the Reserve Bank of Australia (RBA) will continue to endorse a wait-and-see approach at the next policy meeting on October 4 as the central bank head sees the economy adjusting reasonably well to the unwinding of the biggest mining investment boom in more than a century,’ and the higher-yielding currency may continue to outpace its major counterparts over the near to medium-term amid the ongoing easing cycle in Europe as well as in the Asia/Pacific.
  • Will keep a close eye on the downside targets as AUD/USD fails to test the monthly opening range, with the first hurdle coming in around 0.7600 (23.6% retracement) followed by the Fibonacci overlap around 0.7530 (38.2% expansion) to 0.7560 (50% retracement).

Currency

Last

High

Low

Daily Change (pip)

Daily Range (pip)

NZD/USD

0.7251

0.7306

0.7233

49

73

NZD/USD Daily

NZD/USD Daily Chart

Chart - Created Using Trading View

  • The New Zealand dollar pares the advance from earlier this week after outperforming its major counterparts during the last 24-hours of trade, and NZD/USD remains at risk for a broader decline as the RSI comes up against trendline support; bearish trigger in the oscillator may reinforce expectations for a head-and-shoulders reversal as the advance from earlier this year shows signs of exhaustion.
  • According to Overnight Index Swaps (OIS), market participants are currently price a 72% probability for a Reserve Bank New Zealand (RBNZ) rate-cut at the November 10 interest-rate decision as Governor Graeme Wheeler warns ‘current projections and assumptions indicate that further policy easing will be required to ensure that future inflation settles near the middle of the target range, but the kiwi may continue to benefit from the low-yielding environment should the central bank look to conclude its easing cycle in 2016.
  • Need a break/close below 0.7200 (38.2% expansion) to 0.7210 (38.2% retracement) to favor a further decline in NZD/USD, with the next downside region of interest coming in around 0.7040 (50% retracement).
DailyFX SSI
  • The DailyFX Speculative Sentiment Index (SSI) shows the FX crowd remains net-short AUD/USD since September 21, with retail position approaching a near-term extreme, while traders have flipped back to net-short earlier this week.
  • AUD/USD SSI marked a 2016 extreme back in March when it slipped to -2.17, with the ratio currently sitting at -1.42 as 41% of traders are long.
  • NZD/USD SSI stands at -1.45 as 41% of traders are long, with short positions 11.5% higher from the previous week, while open interest is 6.6% above the monthly average.
  • Net-short positioning in the higher-yielding currencies may limit the downside risks for AUD & NZD especially going into the end of the month should we see a further shift within the retail crowd.

Why and how do we use the SSI in trading? View our video and download the free indicator here

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Read More:

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Fed Rhetoric to Keep USD Crosses in Focus Post-FOMC

GBP/AUD at Risk for Key Reversal Above 1.6977

--- Written by David Song, Currency Analyst

To contact David, e-mail dsong@dailyfx.com. Follow me on Twitter at @DavidJSong.

To be added to David's e-mail distribution list, please follow this link.

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.

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