Chapter 41 08/16AUDUSD: Another Test of 0.6500 by the Bulls Would Be a Great Opportunity to Go Short
Abstract: The AUDUSD fell for the seventh consecutive trading day and fell below the year-to-date low on Monday. The softening of the risk tone and the moderate strength of the USD put heavy pressure on the risk-sensitive AUD. Technical graphics are beneficial to bearish traders and support the prospect of further decline in the near future.
Fundamentals
On Wednesday, the AUDUSD fell for the seventh consecutive trading day. Earlier, after the Asian session fell to a new low since November 2022 on Monday, it accelerated the further decline of the AUDUSD.
China's deteriorating economic situation has weakened investors' interest in riskier assets and driven capital flows away from the risk-sensitive AUD. On the other hand, the USD climbed to a high level of several weeks and was supported by the market's increasing acceptance of the Federal Reserve to maintain higher interest rates for a longer period. This, in turn, put downward pressure on the AUD and caused the AUDUSD to continue to fall.
Technically, after the AUDUSD fell below the new low level of 0.6458 since November 2022, it added credibility to the bearish double-top neckline support near the level of 0.6600 in the near future. This, together with the above-mentioned fundamental background, shows that the path of the least resistance of the AUDUSD is downward.
On Wednesday, the trend of the AUDUSD in the Asian and European sessions formed a "Doji Star" pattern, indicating that the market is hesitant because the oversold situation in the 1D timeframe shows that after the sharp decline in the past four weeks, there have been some profit-taking.
The bears face resistance from the important support level of 0.6463, which provides a solid foundation for consolidation or limited adjustment.
Despite this, the overall outlook is still firmly bearish, and the new pressure on the AUD comes from stronger-than-expected U.S. retail sales, which further shows that the U.S. economy is in good condition, and further interest rate hikes may not harm the USD, thus supporting the USD.
The market is still waiting for the minutes of the July policy meeting of the Federal Open Market Committee announced later today. It is widely expected that the Fed will maintain a hawkish stance on monetary policy.
Technical Analysis
This round of decline of the AUDUSD started from a level that is much higher than 0.6720, and it is currently trading below 0.6500, entering a bearish range.
Initial support is located near 0.6425. The next major support is around 0.6400, below which shorts may regain bearish momentum. In the above scenario, the AUDUSD could test the 0.6325 support level.
In the 4H timeframe, the AUDUSD formed lower lows after falling below the 0.6550 level, 100SMA, and 200SMA. At the same time, the AUDUSD seems poised for a further drop below the 0.6455-0.6420 range and to build momentum for an eventual break below the integer threshold of 0.6400. Some subsequent selling will expose the next relevant support level near the 0.6365-0.6360 range and the threshold of 0.6300. If the bears decisively break through this support, it will be regarded as a new trigger for bearish trading and pave the way for further losses of the AUDUSD.
Overall, the AUDUSD is currently in a state of flashing red light, and there is almost no room for upside. It is recommended to go short at the highs.
Trading Recommendations
Trading direction: Short
Entry price: 0.6500
Target price: 0.6259
Stop loss: 0.6620
Deadline: 2023-08-30 23:55:00
Support: 0.6481, 0.6547, 0.6616, 0.6661
Resistance: 0.6427, 0.6403, 0.6272, 0.6170
