Forex Technical Update

Previous: AUD/USD Surges Above the 2012 Declining Trendline (6/29)

AUD/USD Daily Chart 2:00PM EDT 7/2/2012


The AUD/USD rallied sharply on Friday, pushing above a trendline that connected major resistance during the bearish market so far in 2012 (since topping in February and falling in March). In the daily chart we see that the rally brings price to the 200-day simple moving average.

In a sense this reflects a return to a mean price. Looking at 2012 price action on the daily chart, there isn't much bias to the upside nor the downside, here around 1.0250. It is essentially in the middle (50% retracement) of the 2012 high near 1.0850 and low near 0.96.

As we turn to today's price action, we note in the 1H chart that the AUD/USD really slowed down after poor ISM manufacturing PMI data that showed a contraction in June, the first time since July 2009. But even before that, we saw the RSI give a bearish divergence signal.

A corrective decline might see support in the 1.0085-1.0125 area, which contains the 61.8%, 50% retracements and the 200-hour SMA. However, a true bearish signal against the June rally requires a break below the parity level. This will probably require more than just a dovish RBA, but also risk-aversion due to headlines from China or the Eurozone.

AUD/USD Daily Chart 2:04PM EDT 7/2/2012


RBA Meeting

With the RBA meeting and interest policy announcement at 7/3/2012 12:00AM EDT (which is in about 10 hours), the AUD/USD has another reason to pare the risk rally gains it had on Friday on the back of the EU summit.

According to a WSJ report, analysts are expecting a hold to a possible 0.25% cut, which would bring the official cash rate from 3.50% to 3.25%.

A cut should be bearish to the AUD, but the question is whether risk will also be off. If risk is on, a rate cut might be expected to give AUD/USD just a short-term reaction to the downside.

A hold would not be surprising, but could open up to whatever risk dynamic is present ahead of the policy announcement. Meaning, if the market is risk-on, the AUD/USD might slow ahead of the meeting, and speed up after a rate-hold.

Fan Yang CMT is the Chief Technical Strategist, trader, educator and a of the main contributors to FXTimes - provider of Forex News, Analysis, Education, Videos, Charts, and other trading resources.

Information and opinions contained in this report are for educational purposes only and do not constitute an investment advice. While the information contained herein was obtained from sources believed to be reliable, author does not guarantee its accuracy or completeness. FXTimes will not accept liability for any loss of profit or damage which may arise directly, indirectly or consequently from use of or reliance on the trading set-ups or any accompanying chart analysis.