AUDUSD: Awesome Aussie Awakens
City Index August 4, 2015 6:18 PM
<p>The Australian dollar has surged across the board as the Reserve Bank of Australia took a definitive shift to a more neutral outlook last night. […]</p>
The Australian dollar has surged across the board as the Reserve Bank of Australia took a definitive shift to a more neutral outlook last night. Combined with better-than-expected reports on retail sales (0.7% m/m vs. 0.5% expected) and the country’s trade balance (-2.93B in June vs. -3.06B expected), today’s economic reports served as the fundamental impetus for a rapid short squeeze rally in the currency.
As of writing, AUDUSD has rallied all the way up to the .7400 level, up more than 120 pips on the day and there are some legitimate technical reasons to suggest the pair has put in at least a near-term bottom in the mid-.7200s. For one, both the MACD and RSI indicators formed significant bullish divergences (a quadruple bullish divergence in the case of the RSI) over the last several weeks, showing that the downside momentum was fading well before today’s big rally. Meanwhile, the pair is also showing a big Bullish Marubozu Candle* in progress so far today; this candlestick pattern signals strong buying pressure that often carries over into the next few days.
Now that AUDUSD has broken out of its near-term bearish channel (see chart below), the short squeeze may have further to run. To the topside, the next levels to watch are the minor previous highs at .7450 and .7500, followed by major previous-support-turned-resistance at .7550. If we reach that critical long-term level at .7550, bears are likely to come out of the woodwork to defend it, but until then, the path of least resistance remains to the topside.
Traders should also keep a wary eye on key data out of the US (ADP Employment, ISM Non-Manufacturing PMI, and of course, NFP on Friday) and Australia (Employment data on Thursday and the RBA’s quarterly monetary policy statement on Friday) over the next few days.
* A Marubozu candle is formed when prices open very near to one extreme of the candle and close very near the other extreme. Marubozu candles represent strong momentum in a given direction.
GAIN Capital UK Limited (trading as “City Index”) is an execution-only service provider. This material, whether or not it states any opinions, is for general information purposes only and it does not take into account your personal circumstances or objectives. This material has been prepared using the thoughts and opinions of the author and these may change. However, City Index does not plan to provide further updates to any material once published and it is not under any obligation to keep this material up to date. This material is short term in nature and may only relate to facts and circumstances existing at a specific time or day. Nothing in this material is (or should be considered to be) financial, investment, legal, tax or other advice and no reliance should be placed on it.
No opinion given in this material constitutes a recommendation by City Index or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person. The material has not been prepared in accordance with legal requirements designed to promote the independence of investment research. Although City Index is not specifically prevented from dealing before providing this material, City Index does not seek to take advantage of the material prior to its dissemination. This material is not intended for distribution to, or use by, any person in any country or jurisdiction where such distribution or use would be contrary to local law or regulation.