AUD/USD Technicals – Above 0.90 But Bearish Momentum Threatens Further Losses Ahead

AUD/USD traded lower this morning as the downtrend sparked by market pared “ill-gotten” gains after overreacting from RBA minutes continued. Prices received further bearish pressure around 11am Sydney morning (8am SGT) when Australia Skilled Vacancies numbers were released – a 1.4% M/M gain versus 1.7% previous. This is not a bad print by most standards, but price sank from 0.9017 before the news to a low of 0.899 in the hour that followed. It is also interesting to note that stronger the expected Wage Cost Index that was released 30 mins later did nothing to soften the bearish blow, and the difference in reaction adds further confirmation that sentiment in AUD/USD is bearish, which opens up more bearish moves in the near future.

Hourly Chart

To be fair, it should be noted that both news mentioned above are not big hitters and rarely received any mention on headlines. Hence, to say that all the losses suffered today was due to the bad economic news may be tenuous. It is likely that technical pressures played a significant role as well, as price broke below 0.902 support just before the news was released. Also, there are additional pressure from the bearish rejection from descending trendline. The accumulation of all these factors allowed AUD/USD to hit below 0.90 round figure support.

However, prices did not stay below the round figure support for long. Currently we are heading towards to the descending trendline once more following a rebound. But given the bearish underlying sentiment in AUD/USD and S/T bearish technicals, it is unlikely that prices may be able to break above the trendline, and price may instead rebound off the trendline once more and subsequently push below 0.90 for a bearish extension.

Perhaps the final nail of bearish condemnation for AUD/USD would be the fact that risk appetite does not share with the currency pair’s bearishness. Asian stocks indexes are mostly bullish, and even Nikkei 225 which saw more than 0.5% decline actually stabilized and traded higher than the opening levels. Even EUR/USD and other risk currencies did not suffer the same bearishness. As such, even in the case where AUD/USD starts to climb higher together with other risk correlated assets, expect AUD/USD to underperform, and the risk of bearish pullback become higher as well.

Daily Chart

Daily Chart is also bearish with an Evening Star candlestick pattern formed. Stochastic readings have also started to point lower and is crossing the Signal line soon. We’re still some distance from a proper bearish cycle signal, but bearish follow-through is expected to be strong especially if price break below 0.897 soft support when Stoch curve hits below 80.0. This would open up the next wave of bearish momentum and 0.866 will open up as the 1st bearish target with 0.886 as interim support.

Fundamentally, it is true that RBA has a lesser likelihood of slashing rates, but this is not a good reason for continued AUD/USD gains. Certainly market may have priced in a lower rate expectations already, but it should be noted that we are currently more than 300 pips higher than the recent swing low, hence it is reasonable to think that market has already fully priced in a flat RBA rate in 2014, or is close to doing so. Considering that Australia’s economic growth prospect continues to look weak, while USD is still expected to strengthen further due to Fed tapers, outlook for AUD/USD still remains bearish.

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