Forex Technical Update
- 1.06 Broken
- The first sign of topping for the AUD/USD occurred as we started the week with a gap in favor of the USD.
- The price action break below the 1.06 pivot as well as breaking below the 200SMA. This also slid under a projected rising trendline and is now testing another one.
- The RSI broke below 40 so the bullish momentum is lost, and if it tags 30, we have some bearish momentum for this week.
- Another support pivot exists below the current price, near 1.0535. A break below this opens up the 1.0345 level, which is 50% retracement.
- A more aggressive retracement of the August rally targets the 1.0260 area, which is 61.8% retracement, and a pivot seen in the daily chart.
- The daily chart shows that the AUD/USD bears took over at the end of July to beginning of August. The RSI dipped below 30 then, and the market broke the 200SMA.
- The rally in August pushed the RSI to 60, but failed to break it. It was a sharp correction, but one that still leaves another bearish leg open.
- The 1.0345, and 1.0260 levels are thus conservative bearish targets considering the prospect of an AUD/USD slide down towards parity (1.0), or even the 0.97 2011-low.
- The Reserve Bank of Australia meets Tuesday 12:30 AM EDT. The market might not have a big push until after this risk event, but we might get some corrective rally back towards or even back to close the opening gap.
- The 1.07 level however should serve as resistance if the bears are back in control. Thus after the RBA, if the market holds above 1.07, the bears are in trouble. This scenario means that the decline so far is just a correction to the August rally, giving evidence that the August rally is the trend continuation after the late July, early August dip.
- A break and/or hold below 1.0535 however gives bears more confidence that a top has been built, and gives impetus for further decline towards our bearish targets.
Is the market pricing in a dovish RBA, or simply correcting the August rally in the short-term ahead of the risk event? Subscribe and become a member to share your views and join live discussions as well as webinars about the markets.
Fan Yang CMT
Chief Technical Strategist