Downtrend Eases, But Overall Trend Remains Bearish

Forex

Summary:

The Australian dollar declined by 0.7% against the US dollar in Thursday's Asian and European trading sessions, extending its bearish trend from the previous day following the Fed meeting. Nevertheless, its attributes as a risk-sensitive asset may temporarily mitigate the downward momentum.

SELL AUDUSD

Close Time

CLOSED

0.64500

Entry Price

0.61700

0.65750

0.66532 +0.00012 +0.02%

61.6

Pips

Profit

0.61700

0.63884

Exit Price

0.64500

Entry Price

0.65750

Fundamentals

The AUDUSD continued its significant pullback from the psychological level of 0.6500, a three-week high, and extended its decline during Thursday's Asian session. The downward trajectory pushed the spot price lower to the lower end of the trading range, around the 0.6420-0.6415 region, with continued support from USD buying.

The Fed kept interest rates unchanged but signaled another rate hike before the end of the year and the possibility of maintaining high rates until 2024. This stance triggered a new risk-aversion sentiment, leading to substantial USD buying and a decline in the AUD.

In terms of price structure, the technical pattern on the daily chart is weakening as the new decline breaks through technical patterns following the strong upward movement that was rejected on Wednesday. The daily moving average has shifted back into a bearish pattern, and the relative strength index (RSI) is further entering negative territory, signaling recent bearish signals.

However, rapid declines may trigger a short squeeze, causing prices to re-enter the middle area of the trading range. On the bearish side, the daily closing price must remain below the 10-day SMA at 0.6426 to maintain the bearish trend, with a retest of the recent bottom area at 0.6360. A breakthrough in this area would signify a break out of weeks of crowded downtrend.

Downtrend Eases, But Overall Trend Remains Bearish_1

Technical Analysis

The Australian dollar (AUD) faced significant selling pressure yesterday, erasing gains from the past three days and continuing the sharp sell-off that began after the formation of a double-top pattern in July. While the downward momentum paused during Thursday's New York session, the overall sentiment remains bearish. Therefore, at this stage, all eyes are on momentum indicators to find any clues about the asset's potential next moves.

Momentum indicators suggest that the RSI continues to hover below the 50-neutral level and appears to be trending lower. Meanwhile, the stochastic oscillator is currently grappling with its moving averages. The outcome of this battle could play a crucial role in determining the asset's next direction. On the other hand, the Average Directional Index (ADX) does not seem interested in recent price movements and remains below the 25 level.

Looking at the overall technical picture, the neckline is located in the 0.6521 region, and a inverse head and shoulders pattern seems to be forming. However, for this bullish pattern to be validated, a breakthrough of this level is necessary.

If the bulls decide to counter the current correction, they will attempt to overcome the May 31, 2023 low of 0.6458 and then enter the 0.6521-0.6529 range. This range includes the 23.6% Fibonacci retracement level of the April 5, 2022 - October 13, 2022 downtrend, as well as the lower boundary of the rectangle pattern and the 50-day SMA.

On the other hand, the bears may aim to capitalize on the current trend and gradually test the September 6, 2023 low of 0.6356. Then, they might target the November 3, 2022 low of 0.6271, with the primary objective being the October 13, 2022 low of 0.6170.

Overall, following the significant decline experienced yesterday, the bulls currently have limited opportunities, as most momentum indicators continue to support a new bearish trend. In terms of trading strategy, it is recommended to go short at highs.

Trading Recommendations

Trading Direction: Short

Entry Price: 0.6450

Target Price: 0.6170

Stop Loss: 0.6575

Valid Until: 2023-10-05 23:55:00

Support: 0.6380, 0.6357, 0.6272, 0.6210

Resistance: 0.6426, 0.6452, 0.6484, 0.6511

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