AUD/USD Violates Downward Trendline – A Quick Trade Plan

Posted Wednesday, November 4, 2020 by
Arslan Butt • 3 min read

During Wednesday’s Asian trading session, the AUD/USD currency pair failed to stop its early-day losing streak, hitting the intraday low at well under the 0.7100 level, mainly due to the strength of the broad-based US dollar, backed by Trump’s victory in Florida, which instantly provided quite a good lift for the US dollar, and pushed the AUD/USD currency pair below the 0.7100 level. Apart from this, the on-going uncertainty over a possible delay in the outcome of the US elections has tempered investors’ appetite for assets that are perceived as riskier, like the Australian dollar, and contributed to the decline in the currency pair.

On the other hand, the upbeat Australian data, which showed that Australia’s Retail Sales dropped 1.1% MoM in Sept vs. -1.5% expected, failed to provide any meaningful support for the Australian dollar, which in turn resulted in an extension of the declining streak for the AUD/USD. Apart from this, the bearish tone surrounding the currency pair could also be associated with the on-going fears of rising numbers of COVID-19 cases in the US, Europe and some major Asian nations. This continues to fuel concerns over economic recovery, and has pushed the investors towards safe-haven assets. On the contrary, the upbeat Chinese Services PMI numbers provided some reprieve for the AUD currency, and this has become a key factor that is helping to limit deeper losses in the currency pair. The AUD/USD currency pair is currently trading at 0.7116, and consolidating in the range between 0.7050 and 0.7220.

However, the market trading sentiment has being dominated by US election results since the day started, which has tempered the investors’ appetite for the Australian dollar, which is perceived as riskier, and contributed to the declines in the currency pair. As per the latest report, the probabilities of Trump winning the second term have been boosted over the past couple of hours, which in turn, has forced markets to price out the prospect of an easy win for Democratic presidential candidate Joe Biden, and the bigger fiscal stimulus package that was expected to come with it. Conversely, Democratic candidate Joe Biden has won in Arizona, raising the probability of a blue wave in the US Congress. But the counting of the votes will continue for several days, which will continue to fuel uncertainty.

As a result, the broad-based US dollar managed to keep its gains throughout the day, as the traders were still cheering President Donald Trump’s victory in Florida. But, the bid tone around the safe-haven greenback seems to have increased in response to betting markets having President Trump as the favorite to win the elections. However, the gains in the US dollar seem rather unaffected by the risk-on market sentiment. Thus, the greenback’s gains have become a key factor that is keeping the currency pair under pressure. Meanwhile, the US Dollar Index, which tracks the greenback against a basket of other currencies, has risen to 93.898.

Elsewhere, the losses in the currency pair were further bolstered by the on-going fears of rising numbers of COVID-19 cases in the US, Europe, and some of the notable Asian nations, which is continually fueling worries over economic recovery, therefore contributing to the losses for this currency pair. It is worth recalling that Europe is imposing back to back lockdowns restrictions, amid surging numbers of coronavirus cases. Apart from this, the UK, which is one of Europe’s largest economies, is also imposing lockdown restrictions, while Belgium has returned to a nationwide lockdown. Meanwhile, the Composite Output Index increased from 54.5 in September to 55.7 in October.

On the contrary, the Australian dollar is little impressed by the upbeat Chinese Services PMI numbers, which show that, at 56.8, China’s Caixin Services PMI beat the estimates in October. On the data front, China’s Caixin services PMI for October came in at 56.8 against the previous 54.8, which indicates that growth in terms of business activity has improved, amid stronger client demand.

Across the pond, the upbeat Australian data failed to provide any meaningful support to the Australian dollar. Australia’s consumption, as represented by Retail Sales, dropped less than expected in the month of September. On the data front, the retail sales came in at -1.1% month-on-month (MoM), against the expected -1.5%. Quarterly, the 3rd quarter (Q3) figures rose, past the -6% estimate and the previous -3.4%, to +6.5% QoQ.

In the absence of any major data/events on the day, the market traders will keep their eyes on the continuous drama surrounding the US elections and updates about the US stimulus package. In the meantime, the risk catalysts, like geopolitics, the coronavirus woes and Brexit, will also be key to watch for fresh direction.

Daily Support and Resistance
S 1 0.6829
S 2 0.6976
S 3 0.707
Pivot Point 0.7122
R 1 0.7217
R 2 0.7269
R 3 0.7416The AUD/USD continues trading sideways, facing immediate resistance at the 0.7140 level, along with a support area of 0.7065. The bullish breakout at the 0.7140 level could extend the buying trend until the 0.7206 level; conversely, the bearish breakout at the 0.7065 level could drive the selling bias to 0.6994. Meanwhile, all eyes remain on the outcome of the US elections. Good luck!

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