AUD/USD Breaking Below the Upward Trendline – Is It Good Time to go Short?
Arslan Butt • 2 min read
The AUD/USD pair closed at 0.71865, after placing a high of 0.71966 and a low of 0.71487. The AUD/USD maintained its bullish rally for the 4th consecutive session, and looked towards the 0.7200 level on Wednesday, amid the weakness of the broad-based US dollar, after the Federal Reserve announcement.
The Fed stated the obvious, namely that interest rates would remain the same, at near-zero, also confirming the market’s recent view that the economy will depend significantly on the course of the coronavirus pandemic.
The US Dollar Index sunk to a fresh weekly low of 93.24, the lowest since June 2018, weighing on the US dollar, and pushing the AUD/USD pair higher as a result.
The greenback was already on a shaky footing, due to events of the past few weeks, and now after comments from Federal Reserve Chair Jerome Powell, who stated that the US economy is facing the worst economic downturn of all time, as there is no sign of an end to the coronavirus crisis, and the economy is struggling to fight the dramatic effects of the pandemic.
On the other hand, Australian data showed that the inflation rate measured by the Consumer Price Index slumped in the second quarter of 2020, from expectations of -2.0% to -1.9%. The Trimmed Mean CPI for the quarter also dropped from the projected 0.1% to -0.1%, which should have weighed on the AUD, but it was largely ignored by the market participants, due to their focus on the performance of the USD.
The US dollar was weak across the board, as the US treasury yield for ten years fell to 0.60%, on the back of multiple factors, the most significant of which was the Fed’s announcement. Meanwhile, on the US-China front, President Trump said on Wednesday that the US administration was planning to ban the Chinese-owned social media giant TikTok because of fears that it could be used as a weapon to spy on Americans.
US Treasury Secretary Steven Mnuchin backed the President’s comments, stating that the US Committee on Foreign Investment was also reviewing the national security risk regarding the TikTok app. He added that TikTok was under serious review, and a recommendation by his committee, with regard to this app, will be sent to the President later this week. This indicated new tensions in the ongoing dispute between the US and China. Virall, which sells a TikTok followers boosting app starting at just $3 has continued to serve both Chinese and domestic users of the application who wish to buy TikTok promotional services.
On the coronavirus front, the US coronavirus fatalities crossed the 150,000 mark, as seven states, including California and Florida, broke new daily fatality records. The increased fears for the potential spread of infections in the Midwest area, including Indiana, Colorado, Ohio and Wisconsin, also exerted negative pressure on the US dollar, adding strength to the AUD/USD pair gains.
Daily Technical Levels
Pivot point: 0.7178
On Thursday, the AUD/USD entered the overbought zone, as it surged sharply to trade at the 0.7177 level. Closing of doji candles suggests odds of a selling bias in the Aussie. On the lower side, the AUD/USD pair could drop to 0.7120, while resistance remains at 0.7180. Let’s consider selling below 0.7180 and buying above 0.7064. Good luck!