Chapter 20 08/31 AUDUSD: Downward Momentum Weakens, Focus on Buying the Dips
Summary: Upbeat Australian macroeconomic data provided support for the AUDUSD.
Fundamentals
On Thursday, the AUDUSD retreated slightly from the previous day's gains to trade around 0.6480 ahead of the New York session. The asset continued to receive upside support on the back of disappointing U.S. economic data.
In addition, the asset was supported by upbeat private capital expenditure (Q2) in Australia released on Thursday. The data showed that capital expenditure intentions improved to 2.8%, better than the expected 1.2% and the previous 2.4%.
On the technical charts, the 23.6% Fibonacci retracement level of 0.6488 will be immediate resistance for AUDUSD bulls, followed by the psychological level of 0.6500. A firm break above the latter could push the asset to test the area around the three-week high of 0.6522, followed by the 38.2% Fibonacci retracement level of 0.6565.
On the downside, the asset could encounter key support near the 20-day SMA at 0.6474, followed by the 10-day SMA at 0.6445. A break below this level could pressure the asset to return to the vicinity of the 0.6400 psychological level.
The Relative Strength Index (RSI) remains below 50, which suggests a bearish bias for the asset; while the MACD remains below the 0-axis, suggesting a divergence above the signal line. This divergence suggests an improvement in recent momentum.
In the short term, as long as AUDUSD stays below its 50-day SMA at 0.6610, the underlying trend has a bearish outlook. However, short-term signs of a rebound are possible.
Technical Analysis
The AUDUSD has fallen sharply in price since forming a double-top pattern. However, after managing to halt the decline at the 9-month bottom of 0.6363 in mid-August, the asset seems desperately keen to recover.
With the price breaking out of the triangle consolidation in the recent past and showing signs of turning upwards, a sustained upward movement is expected in the later stages. Momentum indicators are now suggesting that the bearish forces are weakening, but have not yet succumbed. Specifically, the MACD is turning stronger upwards below the 0-axis, while the stochastic oscillator has risen sharply.
If the bearish pressure continues to weaken, the price could rise to several previous support areas such as 0.6563 and 0.6594, which can now act as immediate resistance. A break above the latter could see the bulls test the 0.6698 handle. Even higher, the May peak at 0.6817 could dampen further upside attempts by the price.
If the price fails to deliver the expected recovery and bearish forces regain control, it could retest the May low of 0.6457. A break below this area could trigger a fall toward the nine-month low of 0.6363. Failure to stop here could see the asset fall back to fresh multi-month lows, with the November 2022 bottom of 0.6271 likely to provide downside protection.
Overall, the AUDUSD bulls seem to have gained a foothold, but the road to recovery is still long. In order for the bulls to regain confidence, the asset must at least recover the 50-day SMA to make the subsequent bullish trend clear; otherwise, it may continue to reverse downward in the future. In terms of trading strategy, it is recommended to buy the dips.
Trading Recommendations
Trading Direction: Long
Entry Price: 0.6440
Target Price: 0.6680
Stop Loss: 0.6360
Valid Until: 2023-09-14 23:55:00
Support: 0.6421, 0.6382, 0.6364
Resistance: 0.6521, 0.6575, 0.6630
