{x} | Trading.live

Abstract: Since late February, the AUD has been quite directionless and seems to be waiting for the catalyst to break through its range and further rise or fall. This week's data failed to provide this, but last week's weak Australian employment data may continue to drag down the AUD, which offers great trading opportunities for investors.

Fundamentals

Since the end of February, the AUDUSD has formed a very strong and narrow range between the high of 0.6819 and the low of 0.6564.

Last week, the AUDUSD bulls once broke the range, and then quickly fell back. Weak Australian employment data may be an important factor dragging down the AUD.

After an increase of 113,000 in the previous two months, the number of Australian employees recorded a decrease of 43,000 in April, but the market is more concerned about the potential employment trend. That is, in the first four months of this year, the average monthly increase was 28,000, and in the past 12 months, the average increase was 32,000. The potential employment growth is slowly slowing down to below 3%, which is what most countries want to see. However, as the possibility of further interest rate hikes by the Reserve Bank of Australia weakens, AUDUSD will test around 0.6560 at the bottom of the current range.

The AUD is consistent with the risk sentiment. The recent decline of the AUD is caused by the concern of the US debt ceiling. Safe-haven funds flow into the USD, which makes the USD strong. The appreciation space of the USD is bigger than the current market estimate, which seems likely to continue. The credit situation in the U.S. has not tightened as initially feared, while the strong expectations earlier this year have been dashed by economic activities in Europe and China.

At the same time, as the market adjusts the expectation of the Federal Reserve's interest rate cut, the strength of the USD has made the index rise by more than 1% since the beginning of May, and the debt ceiling deadlock has also enhanced its safe-haven appeal. This happened two months after the USD depreciated.

The USD may slowly pick up from this year's low because the possibility of an economic recession is still limited; Therefore, policymakers will have to "put one foot on the brake and one foot on the accelerator" to enter the "watch while walking" mode.

In addition, the depreciation of the USD is usually related to the strong growth in other parts of the world, not to the weak growth in the U.S. The market is still waiting for the challenger, and it seems that the EUR has not yet taken on this role.

Technical Analysis

The AUDUSD began a new round of decline from 0.6819 and is currently trading at the bottom of the range and entering a bearish area. Recent range trading shows that market participants are hesitant about how to take specific action directions. Not knowing the direction of the breakthrough, the focus turned to the momentum index to obtain valuable information.

The depressed Average Directional Index (ADX) confirms that the current range trading is downward, and the RSI is slightly lower than its 50 range. In addition, the stochastic oscillator hovers below its SMA, but now it seems to be consolidating. At the same time, the SMAs converge, which is usually related to the upcoming range-breaking trend. In the 4H timeframe, the AUDUSD closed below 0.6660, 100 SMA, and 200 SMA, which highlights that the choice of direction seems to have been determined.

If the bears successfully break through the current range volatility, they will soon encounter a downward trend of 23.6% Fibonacci retracement of 0.6521 from April 5, 2022, to October 13, 2022. Then, before entering the low point of 0.6271 on November 3, 2022, the path of further breaking will become clear.

On the other hand, if the bulls decide to control the market, they will try to clear the crowded range of 0.6681-0.6706 where the 50-day and 200-day SMAs are located, and the low point of July 14, 2022. Then they will aim at 0.6739, and then aim at the key range of 0.6781-0.6797, in which the upper boundary of the range lies.

Overall, since the range has been broken, the downward space seems to be opened. It is recommended to go short at the highs.

Trading Recommendations

Trading direction: Short

Entry price: 0.6600

Target price: 0.6373

Stop loss: 0.6800

Deadline: 2022-06-07 23:55:00

Support: 0.6551, 0.6521, 0.6426

Resistance: 0.6615, 0.6630, 0.6660