AUD/USD Forecast: Downside Potential for Aussie Despite China Policy Support
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AUD/USD ANALYSIS & TALKING POINTS
- Mixed Chinese dynamics curtail policy optimism.
- Rising wedge breakout exposes potential leg lower for AUD/USD.
AUSTRALIAN DOLLAR FUNDAMENTAL BACKDROP
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The pro-growth Australian dollar is trading marginally higher this Monday against the USD. This comes after China announced their intention to stimulate the economy via loose monetary policy and fiscal support. Price appreciation may have been significantly higher however concerns around rising COVID cases weighed down on AUD gains. Overall markets are exhibiting a feeling of ‘risk-on’ sentiment, reflected by broad based commodity gains – additional sustenance for the Aussie dollar.
Looking ahead, the economic calendar (see below) is unlikely to impact AUD price action although the rest of the week holds several high impact U.S. centric data points. This being said, after guidance received from the Fed last week, these releases may be minimized.
Source: DailyFX economic calendar
Introduction to Technical Analysis
Recommended by Warren Venketas
AUD/USD DAILY CHART
Chart prepared by Warren Venketas, IG
Daily AUD/USD price action reveals a confirmed break below the rising wedge pattern (black). The next breaking point comes via the psychological 0.6700 support handle with a daily candle close below this level possibly opening up the 0.6585 swing low. Bearish/negative divergence remains indicative by the opposing Relative Strength Index (RSI) (lower highs) and AUD/USD (higher highs) price, traditionally leading to subsequent downside.
Key resistance levels:
- 200-day SMA (blue)
Key support levels:
IG CLIENT SENTIMENT DATA: MIXED
IGCS shows retail traders are currently LONG on AUD/USD, with 68% of traders currently holding long positions. At DailyFX we typically take a contrarian view to crowd sentiment but recent changes in long and short positioning result in a short-term cautious bias.
Contact and followWarrenon Twitter:@WVenketas
DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.