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AUD/USD Stages Larger Rebound While Retail Shorts Jump 32%

AUD/USD Stages Larger Rebound While Retail Shorts Jump 32%

2018-07-09 21:30:00
David Song, Strategist
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Australian Dollar Talking Points

AUD/USD initiates a fresh series of higher highs & lows as it breaks out of a narrow range, and the pair appears to on the cusp of a larger recovery as market sentiment improves.

Image of daily change for major currencies

AUD/USD Stages Larger Rebound While Retail Shorts Jump 38%

Image of daily change for AUDUSD

The recent advance in global benchmark equity indices instills a constructive outlook for AUD/USD as it points to a pickup in risk-taking behavior, and the shift in market sentiment may influence the exchange rate over the coming days as the economic docket remains fairly light until the Reserve Bank of Australia (RBA) releases the monetary policy meeting minutes on July 17.

Keep in mind, recent comments from the RBA suggest the central bank is in no rush to implement higher borrowing-costs as ‘the low level of interest rates is continuing to support the Australian economy,’ and more of the same from Governor Philip Lowe & Co. may produce headwinds for the Australian dollar as officials tame expectations for an imminent rate-hike.

Image of IG Client Sentiment for AUDUSD

At the same time, the IG Client Sentiment Report highlights an interesting dynamic as the number of traders net-long AUD/USD is 5.9% lower than yesterday and 20.5% lower from last week, while the number of traders net-short is 6.8% higher than yesterday and 38.3% higher from last week. The sharp swing in retail positioning suggests the crowd was attempting to trade the recent range in AUD/USD, with the break of the monthly opening range raising the risk for a larger rebound in the exchange rate as it carves a fresh series of higher highs & lows.

AUD/USD Daily Chart

Image of AUDUSD daily chart
  • Broader outlook for AUD/USD remains tilted to the downside as the pair continues to track the downward trend from earlier this year, with the Relative Strength Index (RSI) highlighting a similar dynamic.
  • However, recent developments warn of a larger rebound as aussie-dollar breaks out of the short-term range following the failed attempts to close below the 0.7320 (50% expansion) to 0.7340 (61.8% retracement) region, with the pair at risk of extending the rebound from the month-low (0.7311) as a bullish sequence unfolds.
  • Next area of interest comes in around 0.7500 (50% retracement) to 0.7530 (38.2% expansion) followed by the 0.7590 (100% expansion) hurdle, which largely lines up with trendline resistance.

Interested in having a broader discussion on current market themes? Sign up and join DailyFX Currency Analyst David Song LIVE for an opportunity to discuss potential trade setups!

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--- Written by David Song, Currency Analyst

Follow me on Twitter at @DavidJSong.

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

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