Technical Outlook: In my latest Weekly Technical Perspective we highlighted a break below multi-year uptrend support in the Aussie with the risk lower heading into the monthly close. The Reserve Bank of Australia (RBA) interest rate decision is on tap in just under an hour. I’m looking for near-term support at 7480-7500– a break below this level would validate the breakdown with such a scenario targeting the 1.618% extension at 7379 backed by the 61.8% retracement at 7327.
AUD/USD daily price chart
AUD/USD 240min price chart
Notes: A closer look at price action sees Aussie testing near-term downtrend support on building divergence. If we get a rebound on RBA look for resistance at 7634/44 backed by the April open at 7690– both areas of interest for possible exhaustion / short-entries. Bearish invalidation stands at 7759.
Bottom line: IF Aussie is going to get a near-term recovery, this would be a good spot. Ultimately the break below the 2016 trendline does leave the broader risk lower while below basic channel resistance.
A summary of IG Client Sentiment shows traders are net-long AUDUSD- the ratio stands at +2.39 (70.5% of traders are long) – bearish reading
Traders have remained net-long since April 19th; price has moved 2.4% lower since then
Long positions are 10.3% higher than yesterday and 22.2% higher from last week
Short positions are 0.1% lower than yesterday and 0.7% lower from last week
We typically take a contrarian view to crowd sentiment, and the fact traders are net-long suggests AUDUSD prices may continue to fall. Traders are further net-long than yesterday and last week, and the combination of current positioning and recent changes gives us a stronger AUDUSD-bearish contrarian trading bias from a sentiment standpoint.
Written by: Michael Boutros, Currency Strategist with DailyFX