AUD/USD Technicals – Lower Gap failed to inspire bearish breakout

Aussie gapped lower on Monday trading due to Chinese data released over the weekend. Numbers from Beijing is not encouraging with rising inflation and slower domestic growth, adding fears that demand for Aussie’s exports will fall further even as the mining sector appear to have peaked. Though last week Aussie Q4 GDP surprise pushed AUD/USD back to 1.03, much of the gains have been lost, showing the bearish sentiment despite RBA holding key rate flat in the latest decision meeting.

Hourly Chart

There is still hope for the bulls though, as price managed to trade higher immediately after gapping lower. Price broke back above 1.022 and stayed there, showing the resilience of bulls. Stochastic signal is also showing a bullish push higher. However price may find 1.0240 a tougher nut to crack. A break above 1.024 will help lessen pressure to potentially open 1.028 – 1.03 as bullish objectives, failure to break above 1.024 will still put AUD/USD on the back foot though catalyst may be needed for price to return sub 1.022.

Daily Chart

Daily Chart shows AUD/USD firmly on the downside with descending trendline weighing. Stochastic readings are potentially topping, lending weight to the descending trendline. A break of the aforementioned 1.022 level opens up the previous swing low as a downside objective, while a break beyond can potentially push price back to parity as a continuation of the downtrend.

Back in Jan, AUD/USD trended lower due to RBA’s Stevens dovish tone. 2 months later, the tone remains the same without action, promoting traders to discount Steven’s words and the likelihood of rate cuts. Today, despite seeing strong bullish sentiment in equities, AUD/USD remained depressed – highlighting new bearish enemies of the bulls – Worsening economy and Softer China. In this regard, Aussie is caught between a rock and a hard place. Rate cut to improve the economy will result in lower AUD/USD, while no rate cut may result in worsening economy which translate to an eventual lower AUD/USD. Either way, there is limited upside opportunities for AUD/USD. This does not mean AUD/USD cannot rebound higher from here. A technical bullish breakout is certainly still possible, especially with risk appetite going strong. However, follow-through on the upside may be weak, or worse, the revenge reversal towards downside may be swift and fury given the weak fundamentals of Australia.

More Links:
USD / JPY – Risk Trends driving Yen lower, not BOJ
AUD/USD – Better Chinese Trade Balance Failed to Inspire Aussie

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