Analys från DailyFX
Aussie Traders May Look to the RBA for a Break of Consolidation
Talking Points:
- AUD/USD sets a new 3-year low following a head and shoulders reversal
- A July low provides resistance
- Mixed RBA language may be confusing traders
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After declining 940 pips over less than 2-months of trading, the AUD/USD has entered a consolidation pattern between two lows seen over the past summer. But traders trying to guess the direction of the break of the range should make sure to keep a close eye on Australian monetary policy.
Between September and November, the Aussie/Dollar formed a head and shoulders reversal pattern, and the pair’s break below the neck line at 0.9272 was followed by a rapid decline of an additional 450 pips. The 450 pip decline reflected the 478 pip distance between the top of the head and shoulders pattern and the neckline, as is usual for the popular pattern.
AUD/USD Daily
Although the Australian Dollar set a 3-year low at the end of the 450 pip reversal, the pair failed to close below the August low at 0.8847, confirming the level as point of support. That level of support was tested two more times before the Aussie pair popped above a downward trend line beginning at the top of the head and shoulders patter.
AUD/USD Daily
Technically inclined traders might have also noticed that a July low at .8998, which was only two pips away from the key 0.9000 level, provided support during the HS reversal move. Therefore, it should not have been surprising to see AUD/USD find resistance by the broken support by the key level and July low.
AUD/USD Daily
It’s now hard to predict whether or not we are looking at a bearish flag pattern that could continue lower or if this is the beginning of a reversal in the trend.
Furthermore, a look at the fundamentals of the Aussie may leave us even more uncertain. Following the RBA meeting in December, Stevens reiterated that the RBA maintains an open mind on a further cut to its target interest rate, following the 25 bps rate cut in August. However, that dovish outlook was counterbalanced by positive comments about the effects of standing stimulus.
Therefore, the direction of the Aussie may depend on the next statement from the RBA or Governor Stevens. Should Stevens continue to warn of slowing economic growth, the market will further price in an additional rate cut, and the Aussie may fall to new 3-year lows against the US Dollar.
However, if the RBA removes language about further rate cuts from its next meeting or if Stevens displays improved optimism for economic growth, then the Aussie may bounce even higher from this 3-year low.
When looking at the charts, a close above the July low and the key 0.9000 level may indicate further gains to come, while a close below the August low at 0.8847 may be a sign of a further bearish trend for AUD/USD.
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Chart created by Benjamin Spier using Marketscope 2.0
— Written by Benjamin Spier, DailyFX Research. Feedback can be sent to bbspier@fxcm.com .
What’s inside:
- EURUSD broke the ‘neckline’ of a bearish ‘head-and-shoulders’ pattern, April trend-line
- Resistance in vicinity of 11825/80 likely to keep a lid on further strength
- Targeting the low to mid-11600s with more selling
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Coming into last week we pointed out the likelihood of finally seeing a resolution of the range EURUSD had been stuck in for the past few weeks, and one of the outcomes we made note of as a possibility was for the triggering of a ’head-and-shoulders’ pattern. Indeed, we saw a break of the ’neckline’ along with a drop below the April trend-line. This led to decent selling before a minor bounce took shape during the latter part of last week.
Looking ahead to next week the euro is set up for further losses as the path of least resistance has turned lower. Looking to a capper on any further strength there is resistance in the 11825-11880 area (old support becomes new resistance). As long as the euro stays below this area a downward bias will remain firmly intact.
Looking lower towards support eyes will be on the August low at 11662 and the 2016 high of 11616, of which the latter just happens to align almost precisely with the measured move target of the ‘head-and-shoulders’ pattern (determined by subtracting the height of the pattern from the neckline).
Bottom line: Shorts look set to have the upperhand as a fresh month gets underway as long as the euro remains capped by resistance. On weakness, we’ll be watching how the euro responds to a drop into support levels.
For a longer-term outlook on EURUSD, check out the just released Q4 Forecast.
EURUSD: Daily
—Written by Paul Robinson, Market Analyst
You can receive Paul’s analysis directly via email bysigning up here.
You can follow Paul on Twitter at@PaulRobinonFX.
Why and how do we use IG Client Sentiment in trading? See our guide and real-time data.
EURUSD: Retail trader data shows 37.3% of traders are net-long with the ratio of traders short to long at 1.68 to 1. In fact, traders have remained net-short since Apr 18 when EURUSD traded near 1.07831; price has moved 9.6% higher since then. The number of traders net-long is 15.4% lower than yesterday and 16.4% higher from last week, while the number of traders net-short is 0.4% higher than yesterday and 10.5% lower from last week.
We typically take a contrarian view to crowd sentiment, and the fact traders are net-short suggests EURUSD prices may continue to rise. Positioning is more net-short than yesterday but less net-short from last week. The combination of current sentiment and recent changes gives us a further mixed EURUSD trading bias.
— Written by Christopher Vecchio, CFA, Senior Currency Strategist
To contact Christopher Vecchio, e-mail cvecchio@dailyfx.com
Follow him on Twitter at @CVecchioFX
To be added to Christopher’s e-mail distribution list, please fill out this form
Why and how do we use IG Client Sentiment in trading? See our guide and real-time data.
GBPUSD: Retail trader data shows 38.2% of traders are net-long with the ratio of traders short to long at 1.62 to 1. In fact, traders have remained net-short since Sep 05 when GBPUSD traded near 1.29615; price has moved 3.4% higher since then. The number of traders net-long is 0.1% higher than yesterday and 13.4% higher from last week, while the number of traders net-short is 10.6% lower than yesterday and 18.3% lower from last week.
We typically take a contrarian view to crowd sentiment, and the fact traders are net-short suggests GBPUSD prices may continue to rise. Yet traders are less net-short than yesterday and compared with last week. Recent changes in sentiment warn that the current GBPUSD price trend may soon reverse lower despite the fact traders remain net-short.
— Written by Christopher Vecchio, CFA, Senior Currency Strategist
To contact Christopher Vecchio, e-mail cvecchio@dailyfx.com
Follow him on Twitter at @CVecchioFX
To be added to Christopher’s e-mail distribution list, please fill out this form
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