The Aussie is Running Out of Steam… Prepare for More Downside on the AUD/USD
Eric Furstenberg • 3 min read
I have been writing about the Australian dollar a lot in the last couple of days. The reason for this is that out of all the major currency pairs, few have the clear technical picture of the AUD/USD. Let’s look at a daily chart:
AUD/USD Daily Chart
It is clear to see that the picture of this pair is much different than about two weeks ago. Over the last ten days, this pair has sketched the picture of a topping pattern playing itself out. I like how the 20 EMA (the blue moving average) is keeping a lid on the pair. For the last two days, the pair has not been able to close above this exponential moving average. Besides this, today’s candle has formed another beautiful pinbar candle which might be an indication that price could maybe have a hard time closing above the 20 EMA over the next few days, and perhaps even for a longer period. The US dollar has been rather weak lately, but if we see it strengthen again in the near future, it may be even more appealing to sell the AUD/USD. This weekend we have central bankers from around the world gathering together at Jackson Hole to debate the challenges that the global economy faces, and how to fix it with monetary policy. This could prove to be a real market mover. FED chair Janet Yellen will deliver a speech on Friday. If we get a hint from her as to when the next US rate hike could take place, this could be just the catalyst that we need to drive the AUD/USD lower. The conference could, of course, be dollar negative. Good traders use good money management which keeps them prepared for the worst at all times. Let’s look at a 4-hour chart of the AUD/USD:
AUD/USD 4-Hour Chart
Look at the series of lower highs and lower lows that have been formed lately (marked by the boxes on the chart). This shows us how sellers have been accumulating short positions. It also indicates that the buyers have been losing some ground lately. If you missed the recent trade setups I posted of the AUD/USD, you are welcome to have a look at the following articles:
The two AUD/USD trade setups mentioned in these articles are still valid, so feel free to use them. I have opened several short trades on this pair already, and I might open some more depending on how further price action unfolds.
I mentioned in yesterday’s article that this pair was fast approaching some attractive sell levels. I opened a short position yesterday which is currently in profit. The very aggressive oil bounce earlier today helped the position as the Canadian dollar strengthened together with the oil price. Here is a daily chart of the USD/CAD:
USD/CAD Daily Chart
At the moment the 20 EMA is keeping a lid on the price. It looks like a secondary lower high might be in place soon (if not already in place). The 20 EMA might be tactical level to place a sell order. Conservative traders might wait for the price to reach the former support zone found in the region of 1.30160.
Look at the impulsive bounce in oil earlier today:
WTI Crude Oil 5 Minute Chart
This bounce followed the news that Iran may support a cap on oil production. This would decrease oil supply to the market which in turn would raise the price of oil. If we see the oil price advance further over the next few days it could provide the perfect conditions for a further decline in the USD/CAD.
The Euro looks somewhat exhausted and I would not be surprised if the EUR/USD corrects lower over the next few days.
The pound is performing rather well at the moment. The GBP/USD is a tricky pair to trade right now. Shaky UK fundamentals are contradictory to the recent bounce in the pair. Perhaps it seems to certain market players that the Brexit’s effect on the pound was a big overreaction and that the pound is currently undervalued. Who knows…
Economic data releases
Tomorrow we have Australian construction data at 01:30 GMT, German GDP numbers at 06:00 GMT, with US existing home sales, and crude oil numbers later in the day. If you are trading the Canadian dollar, be mindful of the crude oil numbers.
Enjoy your trading day!