The Australian Dollar has tumbled to fresh multi-month lows, but can it continue lower? Here are three key factors we’re watching.
1. A major technical break favors weakness into $0.9013.
2. Aussie Dollar correlation to gold prices leaves it at risk of further declines
3. One-sided retail FX positioning leaves our sentiment-based Momentum2 system steadily short.
Australian Dollar Sees No Significant Support until the Psychologically Important $0.9000 Mark
Source: FXCM Trading Station Desktop, Prepared by David Rodriguez
1. Our Senior Technical Strategist has favored an Australian Dollar short position since 11/7, and a major technical pattern favors further weakness. He notes the lack of significant technical support until $0.9013-9069.
Correlation between Australian Dollar and Gold Prices Underlines AUD Sensitivity to Falling Commodity Prices
2. Beyond the Australian Dollar technical forecast, we note that the AUDUSD link to commodity prices leave it at risk of further weakness. Our Senior Technical Strategist notes that the next several days are critical to Gold prices, and indeed it will be important to watch whether XAUUSD weakness puts further pressure on the falling AUDUSD.
Gold Prices are Testing Important Technical Resistance and Remain at Risk for Further Weakness
Data source: Bloomberg
3. Heavily one-sided retail forex crowd sentiment has left our sentiment-based Momentum2 trading system to consistently sell into further weakness, and indeed current readings favor AUDUSD declines.
Forex crowds remain heavily long the Australian Dollar versus the US Dollar, favoring further weakness
Source: FXCM Execution Desk Data
Retail FX traders are now their most long the Australian Dollar versus its US namesake since it set a double bottom in September. Such one-sided sentiment warns that we’re at a potential sentiment extreme, but as long as crowds continue buying we’ll maintain our contrarian bias in favor of further weakness.
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Forex Correlations Summary
View forex correlations to the SP 500, SP Volatility Index (VIX), Crude Oil Futures prices, US 2-Year Treasury Yields, and Spot Gold prices.
Data source: Bloomberg. Chart source: R SEE GUIDE ON READING THE ABOVE CHART
— Written by David Rodriguez, Quantitative Strategist for DailyFX.com David specializes in automated trading strategies.
Find out more about our automated sentiment-based strategies on DailyFX PLUS.
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