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Fundamentals keep AUDUSD moving lower as US dollar reacts to jobs data

Central banks are getting worried about rising inflation, but the RBA also must worry about rising covid cases and China’s pollical cooling towards Australia. Currently, the Australian dollar looks weak, which will benefit exports, but things could accelerate if the RBA must react to increasing Covid related economics which causes disruptions and long-term negative impacts.

Forex Analysis AUDUSD

Once again, the AUDUSD is starting a trading week weaker than most of the other currency pairs. Last week we had seen slight gains in the Aussie as it ground higher, for it only to collapse with the big bullish jobs data report for the US dollar at the end of last week.

Traders will be looking to China for clarity on their regulatory clampdown and the slowdown in steel production, as Iron ore prices are collapsing. Prices for Australia’s Iron ore are down around 20% in under a month and this along with covid related lockdowns is weighing on the Australian dollar. The RBA is currently on track with their tapering plans as per the meeting minutes from last week but any further disruption to Australia’s economy could mean the RBA looks to loosen monetary policy, which may also depress the Aussie dollar prices further.

The US dollar is being supported by trader sentiment that the Federal Reserve will have to act sooner rather than later, and this is being echoed in the US treasury benchmark yields. The Fed will use every meeting from now on to assess progress in the labor and inflation data, with both metrics pushing towards substantial progress.

The ActivTrades sentiment indicator is not offering much in terms of directional bias but the bulls are slightly bigger in numbers even though the AUDUSD is breaking lower out of the recent rising daily channel.

The 0.7400-0.7420 range has once again been pivotal, with old support now acting as resistance. If the bulls are overwhelmed by the bears, I maintain the most logical target to the downside is the supporting psychological level of 0.7000, which happens to have a clearly defined double bottom. The double bottom chart pattern to me screams traders stop, and that would be where I envisage institutional traders buying into the AUDUSD should the fundamentals change in Australia’s favor. The other reason for that area on the chart to be targeted would be if the short-sellers want to buy back and close part of their position, using the resting orders at 0.7000 as liquidity.

The daily price action is now clearly below the daily 200 exponential moving average and the daily 20 & 50 ema’s are accelerating lower. Momentum often leads to price so this breakdown from 0.7350 could entice more short selling to at least the recent swing low and 0.7250.

As per the EURUSD analysis last week, I will be looking for the H1 to trade lower in line with the daily momentum. Using breakdown levels and waiting for them to act as resistance on this H1 chart along with the dynamic resistance indicated by the moving averages, should give low-risk entries. The thing to watch out for is an H1 swing low to the left which will act as near-term support, but anticipating these levels means you can get to break even or take some size off the trade, ready to reload at the next resistance test.