In this series we scale-back and look at the broader technical picture to gain a bit more perspective on where we are in trend. The Australian Dollar is up more than 6.5% off the monthly lows after briefly dipping to levels not seen since March of 2009. The advance is now targeting the first major resistance hurdle and a make-or-break level for the bulls. Here are the key targets & invalidation levels that matter on the AUD/USD weekly chart. Review this week’s Strategy Webinar for an in-depth breakdown of this setup and more.
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AUD/USD Weekly Price Chart
Notes: In last month’s Australian Dollar Weekly Technical Outlook we continued to highlight the descending pitchfork formation we’ve been tracking off the 2017 & 2018 highs with our ‘bottom line’ focus lower while below 7385”. Aussie briefly broke below a critical support zone at 6828/55 before posting a massive outside-weekly reversal higher amid ongoing bullish divergence in momentum.
The advance is now targeting confluence resistance just higher at the 76.4% retracement / upper parallel around 7240– a breach / close above this threshold is needed to validate a larger reversal with such a scenario targeting 7327 and 7440. IF price has put in a near-term low, losses should not surpass support at the October swing low / 2019 low-day close at 7005/21 (bullish invalidation).
For a complete breakdown of Michael’s trading strategy, review his Foundations of Technical Analysis series on Building a Trading Strategy
Bottom line:The AUD/USD reversal is approaching the first major resistance hurdle, and a make-or-break pivot just higher near 7240s – look for a reaction there IF reached. From a trading standpoint, the focus remains on a stretch into this region with a close above needed to suggest that a larger turn is underway. The immediate advance looks a bit vulnerable so look for pullbacks to hold above the monthly open. I’ll publish an updated AUD/USD technical outlook once we get further clarity on near-term price action.
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AUD/USD Trader Sentiment
- A summary of IG Client Sentiment shows traders are net-long AUD/USD – the ratio stands at +1.19 (+54.2% of traders are long) – weak bearish reading
- Traders have remained net-long since December 4th; price has moved 1.7% lower since then
- Long positions are 9.7% lower than yesterday and 17.5% lower from last week
- Short positions are 17.7% higher than yesterday and 85.0% higher from last week
- We typically take a contrarian view to crowd sentiment, and the fact traders are net-long suggests AUD/USD prices may continue to fall. Yet traders are less net-long than yesterday and compared with last week. Recent changes in sentiment warn that the current AUD/USD price trend may soon reverse higher despite the fact traders remain net-long.
See how shifts in AUD/USD retail positioning are impacting trend- Learn more about sentiment!
Relevant AUD/USD Data Releases
Previous Weekly Technical Charts
— Written by Michael Boutros, Technical Currency Strategist with DailyFX
Follow Michael on Twitter @MBForex
AUD/USD May Fall With Asia Stocks After Wall Street Volatility
Asia Pacific Market Open Talking Points
- British Pound and New Zealand Dollars climbed. Former enjoyed Brexit news, latter rallied on CPI
- S&P 500 recovered after risk-aversion dominated US markets on shutdown news. USD depreciated
- AUD/USD may fall as market mood sours in Asia, jobs data misses expectations. Eyes chart support
See our study on the history of trade wars to learn how it might influence financial markets!
The British Pound and New Zealand Dollar were some of the best performing majors on Wednesday. Sterling continued rallying amid ebbing ‘No-Deal’ Brexit bets despite UK Prime Minister Theresa May leaving the door open to one. Meanwhile, the Kiwi Dollar enjoyed fading expectations of an RBNZ rate cut this year after a better-than-expected local inflation report.
For pro-risk currencies such as the Australian Dollar, the US trading session offered little fuel to extend their gains. White House Economic Adviser Kevin Hassett spoke and warned the continuation of the government shutdown could result in near-zero growth. After gapping higher, the S&P 500 traded lower as domestic government bonds rallied. After a slight rally later, the index closed +0.22%.
This signaled a flight-to-safety as risk capital flowed into haven assets. The US Dollar, which tends to benefit in this scenario, failed to capitalize on gains and ended the day cautiously lower. Falling yields alongside a fading Fed rate hike bets may have been a more prominent influence. Meanwhile the anti-risk Japanese Yen still ended the day lower, perhaps due to the Bank of Japan lowering inflation expectations.
Earlier in the day, US President Donald Trump warned China that tariffs could increase should a trade deal not be reached. As the markets then transitioned into Thursday’s session, the White House requested data on if the shutdown prolongs into March. This showed that it may continue for the time being. As such, these developments may adversely impact Asia Pacific benchmark stock indexes as markets turn risk-averse.
This could boost the Japanese Yen at the expense of the sentiment-linked Australian and New Zealand Dollars. Australia’s December jobs report will also cross the wires. Data out of the country has been tending to underperform relative to economists’ expectations as of late. Such an outcome could increase expectations of an RBA rate cut as AUD/USD falls. Overnight index swaps are pricing in a 34% chance of a cut later this year.
AUD/USD Technical Analysis
The continuation pattern outlined in my weekly Australian Dollar forecast appears to have been broken on the AUD/USD chart below. Typically, a “Pennant” is a continuation pattern. The descent under it may open the door to losses instead. Near-term support is at 0.70211 with resistance around 0.71645.
Each week I conduct a poll to see which Aussie crosses to cover in the technical forecast. You can participate in the poll by following me on twitter @ddubrovskyFX as well as to see timely updates on the Aussie Dollar.
AUD/USD Daily Chart
Chart created in TradingView
US Trading Session
Asia Pacific Trading Session
** All times listed in GMT. See the full economic calendar here
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— Written by Daniel Dubrovsky, Junior Currency Analyst for DailyFX.com
To contact Daniel, use the comments section below or @ddubrovskyFX on Twitter
Traders Net-Long Increases from Last Week
65.7% OF TRADERS ARE NET-LONG
EURUSD: Retail trader data shows 65.7% of traders are net-long with the ratio of traders long to short at 1.91 to 1. In fact, traders have remained net-long since Jan 10 when EURUSD traded near 1.1554; price has moved 1.6% lower since then. The percentage of traders net-long is now its highest since Dec 31 when EURUSD traded near 1.1464. The number of traders net-long is 2.0% higher than yesterday and 27.2% higher from last week, while the number of traders net-short is 8.2% lower than yesterday and 4.3% higher from last week.
To gain more insight to how we use sentiment to power our trading, join us for our weekly Trading Sentiment webinar.
EURUSD SENTIMENT CONTINUES TO SUGGEST A BEARISH BIAS
We typically take a contrarian view to crowd sentiment, and the fact traders are net-long suggests EURUSD prices may continue to fall. Traders are further net-long than yesterday and last week, and the combination of current sentiment and recent changes gives us a stronger EURUSD-bearish contrarian trading bias.
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— Written by Nancy Pakbaz, CFA, DailyFX Research
Oil Risks Larger Recovery as Inverse Head-and-Shoulders Takes Shape
Oil Talking Points
Oil prices remain bid even as the International Monetary Fund (IMF) reduces its global growth forecast for 2019 and 2020, and the ongoing efforts by the Organization of the Petroleum Exporting Countries (OPEC) to stabilize the energy market may spur a larger recovery in crude as an inverse head-and-shoulders formation takes shape.
Oil Risks Larger Recovery as Inverse Head-and-Shoulders Takes Shape
Fresh comments from OPEC Secretary-General Mohammad Barkindo suggest the group will continue to cut production over the coming months as the official insists that the ‘the market has started to respond positively’ at the World Economic Forum in Davos, Switzerland, and the current environment raises the risk for higher crude prices as Mr. Barkindo goes onto say that ‘we are beginning to see very sharp reductions in supply.’
In fact, OPEC and its allies may curb production throughout 2019 as updates from the U.S. Energy Information Administration (EIA) show field production climbing to 11,900K in the week ending January 11 after holding steady at 11,700K for three consecutive weeks, and the group may continue to combat the stickiness in Non-OPEC supply especially as Russia Minister of Energy, Alexander Novak¸ endorses a price range of $55-65bbl.
With that said, the advance from the December-low ($42.36) may gather pace as oil prices break out of the downward trend carried over from late-2018, with developments in the Relative Strength Index (RSI) fostering a constructive outlook for crude as the oscillator bounces back from oversold territory and carves a bullish formation. Sign up and join DailyFX Currency Analyst David Song LIVE for an opportunity to discuss potential trade setups.
Oil Daily Chart
- Crude stages a near-term rebound following the failed attempts to test the June 2017-low ($42.05), and oil prices may continue to track higher as an inverse head-and-shoulders formation takes shape.
- In turn, a break/close above the $55.10 (61.8% expansion) to $55.60 (61.8% retracement) region raises the risk for a larger reversal, with the next area of interest coming in around $57.40 (61.8% retracement) followed by the Fibonacci overlap around $59.00 (61.8% retracement) to $59.70 (50% retracement).
For more in-depth analysis, check out the 1Q 2019 Forecast for Oil
Additional Trading Resources
Are you looking to improve your trading approach? Review the ‘Traits of a Successful Trader’ series on how to effectively use leverage along with other best practices that any trader can follow.
Want to know what other markets the DailyFX team is watching? Download and review the Top Trading Opportunities for 2019.
— Written by David Song, Currency Analyst
Follow me on Twitter at @DavidJSong.
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