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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, Strategist

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?

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.

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

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).

AUD/USD Daily Chart

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

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.

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

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

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

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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