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Daily Chart Shows a Harami Structure, Recommend to Go Long at Lows
Summary:
The positive risk tone has weakened the USD as a safe haven and benefited the risk-sensitive AUD. As inflation heats up in Australia, expectations for a 75 basis point rate hike by the RBA could rise. This week, the FOMC meeting remains in focus, and the AUD remains under pressure from the 21 and 50-day moving averages (MAs).
CLOSED
0.69300
Opening Price
0.70500
TP
0.68500
SL
0.63593 +0.00360 +0.56%
55
Point
Profit
0.68500
SL
0.69355
Closing Price
0.69300
Opening Price
0.70500
TP
Fundamentals
During the Asian and European sessions on Monday, despite pressure amidst widespread risk aversion, the AUDUSD was still consolidating its rally from around the 0.6880 range. Besides, it gained further momentum in the European morning session, pushing spot prices up again to the 0.6950 level, a high touched last Friday. With major central banks committing to control inflation by raising interest rates more sharply, investors are worried about a possible global recession.
Concerns about the growing economic slowdown are offsetting expectations of a 75 basis point rate hike by the RBA, which could increase further if Australian inflation data exceeds expectations this week. It is expected that the RBA will raise rates to 2.85% by the end of the year. Without a slight limit, this would be around the neutral level, after which there would be a pause. A 50 basis point hike is expected at each of the next two meetings, followed by a moderating rate hike to 25 basis points in October and November.
The current high inflation could lead to a significant rise in inflation expectations. Given the highly tight labor market, this could drive the salary negotiation process. If this eventually happens, it will force the RBA to raise interest rates further. Meanwhile, traders are also anticipating the long-awaited Federal Reserve (Fed) rate hike decision for a new USD valuation.
In addition, a surge in confirmed COVID-19 cases in Australia increases upward pressure on the AUD.
According to the Australian Government Department of Health, about 5,450 people were hospitalized with COVID-19 on the 25th, the highest number since the outbreak began in this Oceanian country. This is linked to the rapid spread of two sub-strains of the variant of the novel coronavirus, Omicron. The highly infectious and immune evading Omicron subvariants BA.4 and BA.5 have now become the dominant strains in Australia, exerting pressure on the healthcare system.
Since the end of June, the Omicron BA.4 and BA.5 sub-strains have become the main strains prevalent in Australia, and the number of people hospitalized with infections has risen. The current figure had already surpassed the peak of 5,390 in January this year when the first wave of the Omicron strain was prevalent in Australia. The number of deaths in a single day has also increased, exceeding 100 for the first time on the 23rd.
Technical Analysis
AUDUSD has recorded a bull candle or Harami structure for successive trading sessions after hitting a two-year low at the 0.6681 level on July 14. Based on the sharp rally obtained after the pullback in price in the morning session today, the Harami structure formed on the daily chart is reasonable. This means that the possibility of recording a bull candle today increases significantly.
In the short term, although the pair is still under pressure from the 50-day MA, it is pulling back from its monthly highs. The 14-day Relative Strength Index (RSI) has turned downwards, justifying a new downward move. If the intraday low at 0.6879 is broken, the 0.6845 level of the 21-day MA will be the first support level. However, based on the Harami structure formed by the daily chart, we prefer the pair to rise further after an adjustment. It is recommended to go long at lows.
Trading Recommendations
Trading direction: Long
Entry price: 0.6930
Target price: 0.7050
Stop loss: 0.6850
Valid until: 2022-08-08 20:00:00
Support: 0.6920/0.6888/0.6858
Resistance: 0.6977/0.6993/0.7027
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You understand and acknowledge that there is a high degree of risk involved in trading with strategies. Following any strategies or investment methodologies is the potential for loss. The content on the site is being provided by our contributors and analysts for information purposes only. You alone are solely responsible for determining whether any trading assets, or securities, or strategy, or any other product is suitable for you based on your investment objectives and financial situation.
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Master of Economics, 8 years in the financial industry, CFA holder, joined HSBC (Hong Kong) Bank in 2013 after graduating from the University of California, USA in the Investment Research and Markets Department. With years of financial market experience and trading experience, having provided excellent investment advice to many brokerages, entity derivatives importers and clients in Greater China.
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TRADING
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