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Australian Dollar Outlook: AUD/USD, AUD/JPY May Drop as Retail Traders Go Long

Australian Dollar Outlook: AUD/USD, AUD/JPY May Drop as Retail Traders Go Long

Daniel Dubrovsky, Contributing Senior Strategist

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Australian Dollar, AUD/USD, AUD/JPY, Technical Analysis, Retail Trader Positioning - Talking Points

  • Retail traders continue betting on Australian Dollar strength
  • From a contrarian view, AUD/USD and AUD/JPY may fall
  • What are key technical levels to watch out for to the downside?
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How to Use IG Client Sentiment in Your Trading
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IG Client Sentiment (IGCS) is showing that most retail traders are betting that the Australian Dollar may appreciate against the US Dollar and Japanese Yen. In other words, they are net-long AUD/USD and AUD/JPY. IGCS can at times be a contrarian indicator. If this trend in positioning continues, the Aussie Dollar could be vulnerable ahead. Check out the recording of my webinar above for the full synopsis!

AUD/USD Sentiment Outlook - Bearish

The IGCS gauge shows that roughly 69% of retail traders are net-long AUD/USD. Since the majority of traders are long, this suggests prices may continue falling. Upside exposure has increased by 2.84% and 3.6% over a daily and weekly basis. The combination of overall and recent changes in positioning is offering a stronger bearish-contrarian trading bias.

AUD/USD Sentiment Outlook - Bearish

Technical Analysis

The Australian Dollar remains in a neutral state against the US Dollar after AUD/USD bounced off late-2020 lows (0.6991 – 0.7016). Still, the broader technical outlook arguably remains tilted to the downside given that the downtrend since February is still intact. A breakout under the 0.7106 inflection point may open the door to a retest of late-2020 lows. On the other hand, clearing resistance at 0.7224 exposes the 50-day Simple Moving Average (SMA).

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AUD/USD Daily Chart

AUD/USD Daily Chart

Chart Created in Trading View

AUD/JPY Sentiment Outlook - Bearish

The IGCS gauge shows that about 55% of retail traders are net-long AUD/JPY. Since most investors are long, this suggests that prices may continue falling. This is as downside exposure decreased by 8.0% and 31.3% compared to a day and week ago respectively. The combination of overall and recent shifts in positioning are offering a bearish contrarian trading bias.

AUD/JPY Sentiment Outlook - Bearish

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Technical Analysis

AUD/JPY is idling just under the key 81.65 – 82.02 inflection zone, with the pair in a broader neutral state since earlier this year. Clearing the inflection range exposes the critical 85.44 – 86.26 resistance zone, as well as the 50-day SMA. Turning lower places the focus on the 79.84 inflection point before targeting the 78.84 – 78.00 support zone. Clearing the latter would open the door to resuming the downtrend.

AUD/JPY Daily Chart

AUD/JPY Daily Chart

Chart Created in Trading View

*IG Client Sentiment Charts and Positioning Data Used from December 21st Report

--- Written by Daniel Dubrovsky, Strategist for DailyFX.com

To contact Daniel, use the comments section below or @ddubrovskyFX on Twitter

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

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