Bullish Momentum Remains Absolutely in Control Despite Bull Stagnation

Forex

Central Bank

Summary:

Following a strong upside halt on Wednesday, AUDUSD stalled after a quick retreat when bulls failed to sustain a stand above the 0.7000 psychological mark and were stopped at the 200-week SMA.

BUY AUDUSD

Close Time

CLOSED

0.68990

Entry Price

0.72000

0.66800

0.66339 -0.00044 -0.07%

173.0

Pips

Profit

0.66800

0.70720

Exit Price

0.68990

Entry Price

0.72000

Fundamentals

Australia's weak December labor market report confirmed the end of AUDUSD's current upward momentum at the 0.7000 handle. While short-term rate hike expectations are unchanged, the market will likely await next week's Q4 inflation data to fine-tune its short-term rate expectations.

Today's labor market report suggests that the Reserve Bank of Australia is expected to continue to raise rates for longer than currently expected, which seems unlikely. Once monetary tightening has had too much of an impact on the real economy, the imminent end of the rate hike cycle seems a foregone conclusion and it may temporarily discourage the Australian dollar.

On Thursday, weak Australian labor data showed an unexpected and strong decline in employment, putting AUDUSD under more pressure, and causing a rapid loss of bullish momentum in the RSI and the Stochastic oscillator in the daily chart. It helped to shape the idea of a deeper correction, but there is no more evidence for this to be confirmed at this point.

One thing that is very clear, however, is that the psychological resistance level at 0.7000 is proving to be solid resistance and as long as the price action stays below, it is expected that the short-term price will continue to bear pressure.

Meanwhile, the sharp price correction from 0.7063 adds to the signal of a bull trap above the 0.7000 handle and a warning of a deeper retracement.

Further declines remain to be seen at the initial support level of 0.6852 and the 200-day SMA (0.6819) level, below which the downside outlook would be at risk of more easing.

On the bright side, only a break of the 200-week SMA will allow the bulls to take full advantage and extend the previous bullish rally.

AUDUSD: Bullish Momentum Remains Absolutely in Control Despite Bull Stagnation_1

Technical Analysis

AUDUSD has continued to gain ground after hitting a 32-month low of 0.6167 in mid-October and has continued to enjoy an impressive rally. Nevertheless, the pair has experienced a mild pullback recently, with its latest upward momentum encountering strong resistance at a new five-month high of 0.7063 level.

Momentum indicators suggest that bullish forces are weakening but still maintain control. Specifically, the MACD is exhausted above the 0-axis but continues to move sideways above it, while the RSI remains under pressure in positive territory.

If the previous selling pressure continues, the pair could fall toward the near-term support at the 0.6857 level. Below this area, the bears could target the January low at 0.6687 before moving further lower. However, any more downside would stop at the 0.6546 handle.

On the other hand, bullish momentum could push the price to the near-term resistance at the 0.7063 level. Conquering this barricade, the pair could extend its recovery to test the August peak of 0.7136. Breaking above the latter, the June high of 0.7282 could come under examination.

Overall, AUDUSD appears to be experiencing some weakness after losing momentum in the medium-term rally. But later, with the accumulation of momentum indicators, we are more bullish on the pair to continue the current recovery. It is recommended to buy the dips.

Trading Recommendations

Trading Direction: Long

Entry Price: 0.6910

Target Price: 0.7200

Stop Loss: 0.6680

Valid Until: 2023-02-02 23:55:00

Support: 0.6852, 0.6819, 0.6758, 0.6722

Resistance: 0.6915, 0.7000, 0.7076, 0.7091

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