AUD/USD - Resistance At 0.9425 Looms Large Again

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Includes: CROC, FXA, GDAY
by: Dean Popplewell

By Stuart McPhee

AUD/USD for Tuesday, July 8, 2014

To start this week the Australian dollar is slowly trying to edge higher and regain some of the lost ground from late last week. The Australian dollar enjoyed a solid surge higher reaching a new eight month high above 0.95 in the middle of last week, only to return most of its gains in very quick time to finish out last week. 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. 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 Australia dollar retreat further.

It was only a month or so ago 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.

RBA's chief Glenn Stevens said last week that markets find the idea of his board's "masterly inaction" unappealing. On cue, traders raised bets on lower interest rates. After Stevens spoke on July 3, 30-day interbank futures showed about a 56 percent chance that policy makers will lower the benchmark rate by a quarter-percentage point by March, compared with 30 percent the day before. The extra yield on Australia's 10-year note over similar-maturity U.S. Treasuries slid to 90 basis points last week, the least since October 2006. In the wake of a largely unchanged rate decision statement on July 1, Stevens caught some by surprise by saying investors are underestimating the probability of a "significant fall" in the Australian dollar at some point. The RBA's comments on policy stability were to clarify it didn't see a risk of imminent increases, he said. The Aussie completed its longest monthly rally since 2009 in June, threatening the competitiveness of exporters.

(Daily chart / 4 hourly chart below)

AUD/USD July 8 at 00:10 GMT 0.9373 H: 0.9373 L: 0.9366

AUD/USD Technical

S3 S2 S1 R1 R2 R3
0.9220 0.9100 - 0.9425 0.9500 -
Click to enlarge

During the early hours of the Asian trading session on Tuesday, the AUD/USD is slowly trying to edge higher up from its lows around 0.9340, which has happened since falling back from its new eight month high above 0.95 late last week. 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 0.95 again. Current range: trading right above 0.9350.

Further levels in both directions:

• Below: 0.9220 and 0.9100.

• Above: 0.9425 and 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 moved back above the 50% level as the Australian dollar has fallen back from the eight month high around 0.95. The trader sentiment changes to in favour of long positions.

Economic Releases

  • 23:50 (Mon) JP Bank Lending Data (Jun)
  • 23:50 (Mon) JP Current Account (May)
  • 01:30 AU NAB Business Conditions (Jun)
  • 01:30 AU NAB Business Confidence (Jun)
  • 08:30 UK Industrial Production (May)
  • 08:30 UK Manufacturing Production (May)
  • 14:00 UK NIESR GDP Est. (Jun)
  • 19:00 US Consumer Credit (May)
  • JP Economy Watchers Survey (Jun)

*All release times are GMT