The Forex market is moving with a directional bias driven by a strengthening US Dollar, while the Australian Dollar has recently become one of the weakest major currencies, seemingly decoupled from risk sentiment to some extent with US stock markets recently rising to make new record highs. This is putting the AUD/USD currency pair in sharper focus over recent days, as it moves lower with some momentum. The Australian Dollar has real but relatively minor issues of its own. The US Dollar is always a big deal as it accounts for approximately 80% of FX traded globally, so it can be said that is the main driver, but the Aussie is looking like a great short counterparty to it. Why?
Top Regulated Brokers
The Australian Dollar is likely to remain driven by global risk sentiment, Chinese economic prospects, and commodity prices, especially the latter two factors. Stronger demand for industrial metals and improving Chinese growth expectations would support the Aussie, especially in a risk-on market environment. However, signs that Australian inflation is falling quickly enough to allow Reserve Bank of Australia rate cuts could limit gains. The currency remains vulnerable to weaker Chinese data or renewed concern over global growth.
The US Dollar remains supported by relatively high Treasury yields (10-Year now trading above 5.12%) and its safe-haven status. Firm US employment, inflation, or growth data would strengthen the case for the Federal Reserve to keep policy restrictive, supporting the Dollar. Conversely, weaker data and falling yields could encourage expectations of slower Fed rate hikes, creating downside pressure on the greenback.
It looks like fundamentals and sentiment is supporting a bearish case in this currency pair, more strongly than they were a few days ago as markets turn more bullish on the greenback.
AUD/USD Technical Analysis
The key technical factor is probably the US Dollar’s sustained bullish breakout above the 100 area in the DXY (US Dollar Index). The Dollar now has an open path towards the next key resistance level at 101.30.
The price chart below shows that the AUD/USD currency pair has made a significant and strong bearish breakdown, The breakdown has strong momentum and has already broken through several former support levels. The price action is showing a succession of lower lows and lower highs, which is a bearish technical sign.
The very short-term picture is different, with bulls testing the nearest resistance level at the time of writing, at 0.7040. If we get a break above this level, a pop higher to 0.7082 or so looks likely – but this set up looks weaker here than it does in some other USD currency pairs, which is a bearish sign.
Traders looking for a longer-term swing trade might want to hope for a bullish retracement to the nearest resistance level at 0.7082. A firm bearish rejection of a failed test there could be a good short trade entry signal.
AUD/USD H1 Price Chart – Broken Double Bottom at 0.7082
Support & Resistance Levels
My previous AUD/USD signal on 14th September was not triggered.
Risk 0.25%.
Trades may only be entered prior to 5pm Tokyo time Friday.
Short Trade Idea
Short entry following a bearish price action reversal on the H1 time frame immediately upon the next touch of $0.7042, $0.7082, or $0.7099.
Place the stop loss 1 pip above the local swing high.
Adjust the stop loss to break even once the trade is 20 pips in profit.
Take off 50% of the position as profit when the price reaches 20 pips in profit and leave the remainder of the position to ride.
Long Trade Ideas
Long entry following a bullish price action reversal on the 1H1 time frame H1H1H1 time frame immediately upon the next touch of $0.7023, $0.6985, or $0.6949.
Put the stop loss 1 pip below the local swing low.
Move the stop loss to break even once the trade is 20 pips in profit.
Remove 50% of the position as profit when the price reaches 20 pips in profit and leave the remainder of the position to ride.
The best method to identify a classic “price action reversal” is for an hourly candle to close, such as a pin bar, a doji, an outside or even just an engulfing candle with a higher close. You can exploit these levels or zones by watching the price action that occurs at the given levels.
There is nothing further of high importance scheduled today concerning either the Australian Dollar or the US Dollar.
Ready to trade our daily Forex signals? Here is our list of the top Forex brokers worth checking out.