Tuesday, September 27, 2022

AUD/USD Analysis: Ascending Trend-line/50-DMA Confluence Breakdown Favors Bearish Traders

  • A combination of factors pulled the AUD/USD to a one-month low on the last day of the week.
  • Weak commodity prices, risk-free momentum weighed on the resource-bound Australian dollar.
  • Bets on aggressive Fed rate hikes, rising US bond yields continued to propel the greenback.

The AUD/USD pair added to the previous day’s heavy losses and Friday saw some follow-through sell-offs for the second day in a row. The downward trajectory pulled spot prices to their lowest levels during the Asian session since March 17 and was spurred by a combination of factors. Investors are concerned that China’s aim to limit its steel production in 2022 could significantly reduce iron ore demand, which, in turn, serves as a headwind for the resource-strapped Australian. This, coupled with the underlying bullish sentiment around the US Dollar, took a toll on the RBA minutes released earlier this week and put downward pressure on the major.

The USD capped this week’s sharp return from a two-year peak and made a solid comeback from a one-week low on Thursday after Fed Chair Jerome Powell but hiked rates by 50 bps at an upcoming policy meeting on May 3-4 Confirmed. , Powell also signaled steady growth this year and pushed yields on rate-sensitive 5-year US government bonds above 3% for the first time since 2018. In addition to prospects of a more aggressive policy tightening by the Fed, the risk-off impulse further strengthened the safe-haven greenback. This was seen as another factor that drove flows away from the perceived risky Australian dollar and contributed to the ongoing decline.

Market participants are now awaiting the Flash US PMI prints, which are due later at the start of the North American session. This, along with US bond yields, will affect USD price dynamics and provide a new impetus to the major. Traders will take cues from the broader market risk sentiment to grab some short-term opportunities on the last day of the week.

technical approach

From a technical point of view, it seems that the pair has now confirmed a new bearish break above the 0.7355-0.7350 confluence support. The above area consisted of the YTD low and an ascending trend-line extending from the 50-day SMA. A slide below the previous monthly low is in favor of bearish traders and supports the possibility of further losses. Therefore, some follow-up weakness in the direction of testing the 0.7300 mark, the next relevant support near the mid-0.7200 mark, remains a distinct possibility.

On the other hand, any meaningful recovery effort now faces stiff resistance near the 0.7400 round-figure mark. This should now act as a turning point for short-term traders. Continued strength beyond this could trigger a short-covering move and take the spot price back to weekly highs near the 0.7455-0.7460 area. The upward trajectory could continue further and allow the bulls to aim for a retest of the 0.7500 psychological mark.

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Nation World News Desk
Nation World News Deskhttps://nationworldnews.com
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