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Australian Dollar Forecast: AUD/USD, AUD/JPY Bounce Off Support - What's Next?

Australian Dollar Forecast: AUD/USD, AUD/JPY Bounce Off Support - What's Next?

2020-02-04 19:30:00
Peter Hanks, Analyst
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Australian Dollar Outlook:

  • AUD/USD bounced off horizontal support around 0.6678 after falling precipitously in January
  • Now the pair will have to retake a descending band that has kept price contained in the past
  • Meanwhile, AUD/JPY displayed the pair’s sensitivity to risk trends as it posted a massive daily move and reclaimed an important trendline

AUD/USD Forecast: Resistance in Focus

AUD/USD rallied higher on Tuesday as risk appetite roared and an RBA rate decision saw the central bank keep rates steady. In conjunction with fundamental improvements, the Australian Dollar enjoyed a boost from technical support that resides around the 0.6678 level and has helped to spark reversals in the past. The confluence of bullish catalysts worked to drive AUD/USD into a descending band of resistance that was offering support just last week. Failing to keep the pair afloat then, can it keep price under wraps now?

AUD/USD Price Chart: Daily Time Frame (December 2018 – February 2020)

australian dollar forecast, audusd

Looking to the technical landscape, RSI reveals AUD/USD is still near oversold territory and the horizontal support beneath has displayed its influence yet again. Nevertheless, coronavirus fears still exist and global growth forecasts have been adjusted lower in response.

Given the Australian Dollar’s ties to global - particularly Chinese - growth projections and the performances of commodities like crude oil and copper is a worrying sign as their declines have not yet leveled off. With that in mind, continued weakness may be in store for AUD/USD. Further, soaring long exposure reflected in IGCS data suggests Australian Dollar strength may be short lived.

AUD/USD BULLISH
Data provided by
of clients are net long. of clients are net short.
Change in Longs Shorts OI
Daily -20% -4% -9%
Weekly 1% 8% 6%
What does it mean for price action?
Get My Guide

In the meantime, further improvements in risk appetite could propel AUD/USD through nearby resistance until subsequent barriers around 0.6827 and 0.6864 look to halt further gains. Should AUD press lower and breach 0.6678, support becomes alarmingly sparse – the pair trades near an 11-year low – which could open the door to deeper losses. As price action develops, follow @PeterHanksFX on Twitter for updates and analysis.

AUD/JPY Forecast

Shifting focus to AUD/JPY, price action reveals the influence of broader risk sentiment on the pair. Often viewed as being on opposite sides of the risk spectrum in the foreign exchange market, Tuesday’s risk resurgence is reflected in the largest daily candle for the pair since December 11, 2019. Consequently, AUD/JPY managed to reclaim the descending trendline from the December 2018 highs and could look to probe the 200-day simple moving average and horizontal resistance around 74 if risk appetite continues.

AUD/JPY Price Chart: Daily Time Frame (December 2018 – February 2020)

australian dollar forecast, audjpy

Retail traders are similarly confident AUD/JPY has established a bottom for the time being and are suspecting a rally higher. Since we typically view such sentiment as a bearish indicator, it may suggest AUD/JPY will continue lower in the days ahead – despite the newfound strength. Should it reverse lower again, support will likely reside at the 72.48 and 71.88 levels before subsequent assistance can come into play around 70.

AUD/JPY MIXED
Data provided by
of clients are net long. of clients are net short.
Change in Longs Shorts OI
Daily 2% -11% -7%
Weekly -14% 27% 10%
What does it mean for price action?
Get My Guide

--Written by Peter Hanks, Junior Analyst for DailyFX.com

Contact and follow Peter on Twitter @PeterHanksFX

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

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