AUDUSD turned tail after the FOMC meeting on Wednesday right at the final key resistance area and is now testing the “ideal” support. What’s the pair’s next move?
AUDUSD turned tail on the day of the FOMC meeting right at the ideal resistance level provided by the previous major low just above 1.0200. The 200-day moving average was also looming just above that level. Now the pair has swooped lower in no time and is already testing the “ideal” support at parity, which was also a stumbling block on the way higher. What’s next for the pair – a retest of the sub -0.9600 lows or is this merely a large consolidation along the road higher.
Chart: AUDUSD
My thoughts:
For now, the trend is still bearish – after all, the original sell-off started way back in February at a lofty 1.08 and was confirmed in May with that move below the 1.0225 support – so as long as we stay below there, the default stance is a bearish one.
Other indicators
The other key indicators for the likes of AUDUSD are commodity prices and the stance in risk appetite, as well as developments in interest rate expectations. By those measures, the pressure is very much on the downside for Aussie from the commodities complex, particularly after yesterday’s move in precious metals markets. Equities and risk appetite have been the main driver of the Aussie strength from the lows, but yesterday was a red flag on that account. From an interest rate differential perspective, the spread was at its tightest close to the recent low in AUDUSD below 0.9600 and widened in favour of the Aussie since then, but not quite in proportion to the recent rally.
Big technical picture
If we zoom way out, the situation is a bit less compelling for bears, as we’ve been zig-zagging in an enormous 0.9600-1.1000 range (save for one brief slip late last year) for almost two years. That underlines the importance of the recent sub-0.9600 low, as a break of that level is the real trigger for a bigger bear move of possibly a thousand pips or more. Before then, however, bears need to see parity quickly fall again and further support for the move lower from weaker risk appetite and a renewed tightening in interest rate spreads.
John J Hardy,
SAXO BANK