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Australian Dollar Forecast: Key AUD/USD Levels to Watch, Risk of Breakdown

Australian Dollar Forecast: Key AUD/USD Levels to Watch, Risk of Breakdown

2020-01-22 09:00:00
Justin McQueen, Analyst
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Australian Dollar Analysis and Talking Points

  • AUD/USD | Risks a Breakdown on Soft Jobs Data
  • Key Trendline Support Holding
  • RBA Rate Cut Probability at 42%

AUD/USD | Risks a Breakdown on Soft Jobs Data

Last week, we highlighted that upside in AUD/USD could be limited with resistance at 0.6930-35 capping the pair. Since then, the Australian Dollar has extended its recent downside amid the rising concerns over the Chinese virus outbreak, which in turn prompted a dip across risk assets. However, looking forward, much of the focus will be on the Australian jobs report, which will be pivotal for the near-term outlook for the currency.

Given that market pricing for an RBA rate cut is at 42% we see two-way risks for AUD/USD, whereby a weaker than expected employment report would likely see the pair break the 0.6800 handle to test 0.6780. While a firm report could see a retest of 0.6900 as markets price out the likelihood of near-term easing. As it stands, with employment indicators signalling the labour market will continue soften, we see risks are tilted to the downside.

AUD/USD BEARISH
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of clients are net long. of clients are net short.
Change in Longs Shorts OI
Daily -4% -28% -10%
Weekly 6% -19% -1%
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Australian Labour Market at Risk of Softening Further

Australian Dollar Forecast: Key AUD/USD Levels to Watch, Risk of Breakdown

On the technical front, DMI’s signal that bearish momentum is intact and thus raises the risk of a firm break below the rising trendline stemming from the 2019 low. In such case, this would likely see a dip towards 0.6800 with a follow through to 0.6780.

AUD/USD Vanilla Options: 0.6780 (516mln), 0.6900 (411mln)

Implied Daily range (0.6807 – 0.6865)

Support

Resistance

0.6840

Trendline Support

0.6848

100DMA

0.6802

Dec 10th Low

0.6862

200DMA

0.6780

Vanilla Options

0.6883

50DMA

AUD/USD Price Chart: Daily Time Frame (Jul 2019 Jan 2020)

Australian Dollar Forecast: Key AUD/USD Levels to Watch, Risk of Breakdown

Source: IG Charts

--- Written by Justin McQueen, Market Analyst

Follow Justin on Twitter @JMcQueenFX

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

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