AUD/USD Violates Upward Channel – Brace for Selling!
Arslan Butt • 2 min read
The AUD/USD pair closed at 0.71815, after placing a high of 0.72754 and a low of 0.71790. Overall, the movement of the AUD/USD pair remained bearish throughout the day. After posting gains for three consecutive days, the AUD/USD pair dropped on Wednesday. However, in the early trading session, the pair rose, reaching its highest level since February 2019, close to 0.72754; however, it failed to maintain its gains and started dropping again, ending the day by posting losses.
The improved risk mood has resulted in a rise for the AUD/USD pair for nine consecutive weeks, and possible correction can be seen, as the pair has touched the highest level since February 2019. However, the losses on Wednesday were not due to the correction – rather, they were related to the strength of the US dollar and the escalated US-China tensions.
The US dollar was strong across the board on Wednesday, based on the minutes of the FOMC meeting for July, which revealed that policymakers were suggesting capping the bond yields. Furthermore, the minutes also stated that the path ahead is very uncertain, in terms of the economic slowdown after the coronavirus pandemic, and this calls for both fiscal and monetary support.
Meanwhile, Trump’s US administration proposed passing a 500-billion-dollar stimulus relief bill, while the chambers of the US Congress continue to debate over the $ 1 trillion and $ 3 trillion stimulus bills that were proposed previously. All of this helped the US Dollar Index to reach the 93 level, and the 10-year Treasury bond yield to gain 0.9%. This added strength to the US dollar, ultimately dragging the AUD/USD pair onto the lower side.
The US-China tensions also escalated, after the latest comments by US President Donald Trump, who revealed the reason behind the delayed review meeting between the US and China. He said that he had canceled the meeting, because he did not want to meet with China as he was angry about Beijing’s handling of the coronavirus pandemic, which had ultimately disrupted the economy all over the world.
The negative statement a day after the move by the US, in which it blacklisted the Huawei telecom group in America, provided many reasons for China to implement retaliatory measures. The escalated dispute between the world’s two biggest economies weighed on the risk sentiment, pulling down the Aussie, which is perceived as risky, ultimately resulting in losses for the AUD/USD pair on Wednesday.
Daily technical Levels
Pivot Point: 0.7212
The AUD/USD is facing immediate support at the 0.7179 level, and closing below this level, may extend the selling bias for the Aussie until the next support level of 0.7110. On the higher side, the resistance remains at 0.7220. Lately, the Aussie dollar has violated the upward channel, which is likely to push the AUD/USD further down, below 0.7179, to 0.7140 and 0.7110. Good luck!