AUD/USD TECHNICAL OUTLOOK: BEARISH
- Australian Dollar testing resistance marking the 2020 downtrend
- 4-hour chart warns that a reversal lower may be brewing ahead
- Trader sentiment studies warn of possible bearish exposure shift
The Australian Dollar has recovered to challenge the bounds of its 2020 downtrend against its US counterpart. The bounce seems to reflect ebbing credit market stress after the Federal Reserve delivered back-to-back liquidity-boosting measures amid signs that the coronavirus outbreak is stoking a cash crunch.
From here, a daily close above the 0.65 figure would suggest that near-term selling pressure has been neutralized. That might open the door for another challenge of support-turned-resistance in the 0.6671-90 zone, a former range floor in play since August 2019.
AUD/USD daily chart created with TradingView
If prices are rejected downward, initial support appears to be marked by the 61.8% Fibonacci retracement at 0.6236. Breaching this barrier – with confirmation on a daily closing basis – would also mark the break of counter-trend support and set the stage for the still-dominant bearish bias to be reasserted.
Zooming into the four-hour chart cautiously argues in favor of the latter scenario. The appearance of negative RSI divergence speaks to ebbing upside momentum may speak to a bearish reversal in the cards. Confirmation on a break of rising trend support seems needed for an actionable setup however.
AUD/USD 4-hour chart created with TradingView
AUD/USD TRADER SENTIMENT
Retail sentiment data shows 51.16% of traders are net-short, with the short-to-long ratio at 1.05 to 1. IG Client Sentiment (IGCS) is typically used as a contrarian indicator, so traders being narrowly net-short suggests a cautiously bullish AUD/USD trend bias.
However, the net-short skew in traders’ positioning has narrowed over the past day. With overall exposure already almost in balance, this may be paving the way for a net exposure flip that puts traders net-long. That might accompany a reversal downward.
See the full IGCS sentiment report here.
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--- Written by Ilya Spivak, Currency Strategist for DailyFX.com
To contact Ilya, use the comments section below or @IlyaSpivak on Twitter
