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By Stuart McPhee

AUD/USD for Friday, July 4, 2014

The Australian dollar has enjoyed a solid surge higher reaching a new eight-month high above 0.95 in the last few days, only to return most of its gains in very quick time over the last couple of days. Over the last few weeks the Australian dollar has made repeated attempts to break through the resistance level around 0.9425, however despite its best efforts it was rejected every time as the key level continued to stand tall. At the start of last week, the Australian dollar surged higher and reached a three-month high just above 0.9500 before succumbing to selling pressure. After the Australian dollar had enjoyed a solid surge in the first couple of weeks of June which returned it to the resistance level around 0.9425, it then fell sharply away from this level back to a one-week low around 0.9330 before rallying higher yet again. Its recent surge higher to the resistance level around 0.9425 was after spending a couple of weeks at the end of May trading near and finding support at 0.9220. The 0.9220 level has repeatedly reinforced its significance, as it is again likely to support price should the Australian dollar retreat further.

It was only a month or so ago that the Australian dollar was placing pressure on the resistance level at 0.94 when it was able to poke through for a short period and reach a four-week high in the process, however, in recent times it has surpassed those levels and achieved new levels around 0.9425. Throughout April and into May, the Australian dollar drifted lower from resistance just below 0.95 after reaching a six-month high in that area and down to the recent key level at 0.93 before falling lower. During this similar period the 0.93 level has become very significant, as it has provided stiff resistance for some time. The Australian dollar appeared to be well settled around 0.93, which has illustrated the strong resurgence it has experienced throughout this year. For the best part of February and March, the Australian dollar did very little other than continue to trade around the 0.90 level, although at the beginning of March, it crept a little lower down to a three-week low below 0.89. Towards the end of March however, the Australian dollar surged higher strongly moving to the resistance level at 0.93 before consolidating for a week or so.

For several months either side of the New Year, the Australian dollar established and traded within a narrow range roughly between 0.88 and the previous resistance level at 0.90. Back in January, the Australian dollar was able to rally higher pushing through the resistance at 0.90 to a one-month high near 0.91, however it quickly returned to more familiar territory below the resistance levels at 0.90 and 0.88. After showing some resilience in early December moving to a one-week high above 0.9150, the AUD/USD spent the next two weeks turning around sharply and falling heavily down to a then three-month low close to 0.88.

Australia's economic re-balancing away from the mining boom is still in its early stages, a top central banker said on Thursday, while warning investors they were underestimating the risk of sharp fall in the local dollar. In a wide-ranging speech, Reserve Bank of Australia (RBA) Governor Glenn Stevens said there had not been any thought of raising interest rates, and implied markets were right to price in a long period of steady policy. Stevens also welcomed the recent slowdown in the growth of house prices and hoped it would persist for the next year or so. Stevens went on to say Investors are under-estimating the probability of a "significant fall" in the Australian dollar. "Most measurements would say it is overvalued, and not just by a few cents," Stevens said in the text of a speech to be delivered in Hobart. "We think that investors are under-estimating the likelihood of a significant fall in the Australian dollar at some point." Stevens today reiterated that the currency remained high by historical standards and said it was "uncomfortable" for sectors exposed to trade.

(Daily chart / 4 hourly chart below)

AUD/USD July 3 at 23:55 GMT 0.9347 H: 0.9349 L: 0.9344

AUD/USD Technical

S3S2S1R1R2R3
0.92200.9100-0.9500--

During the early hours of the Asian trading session on Friday, the AUD/USD is just easing back a little after falling back from its new eight-month high above 0.95 and appears to be settling just under 0.9350. The Australian dollar was in a free-fall for a lot of last year falling close to 20 cents and it has done very well to recover slightly to well above 0.90 again. Current range: trading right under 0.9350.

Further levels in both directions:

• Below: 0.9220 and 0.9100.

• Above: 0.9500.

OANDA's Open Position Ratios

(Shows the ratio of long vs. short positions held for the AUD/USD among all OANDA clients. The left percentage (blue) shows long positions; the right percentage (orange) shows short positions.)

The long position ratio for the AUD/USD has fallen back towards the 50% level as the Australian dollar has pushed back up and reached a new eight-month high around 0.95. The trader sentiment changes to in favour of long positions.

Economic Releases

  • Nothing to report - there is not much happening with releases due to the 4th of July U.S. holiday

*All release times are GMT

Source: AUD/USD - Drops Sharply To Below 0.9350