Chapter 24 09/05 AUDUSD: Go Short at the Highs as Selling Pressure Continues to Build
Abstract: After the Reserve Bank of Australia (RBA) kept interest rates unchanged at today's policy meeting, the AUDUSD plunged. Before the New York session, the AUDUSD reported 0.6357, a decrease of 1.41%.
Fundamentals
The RBA kept the cash interest rate target unchanged at 4.10% at today's policy meeting, which was in line with market expectations and provided more time for assessing the impact of previous interest rate hikes and changing economic prospects. Although the RBA remains hawkish, it emphasizes that future decisions will be highly dependent on data, especially global economic trends, household expenditures, labor, and inflation.
In the accompanying statement, the RBA pointed out that "further tightening of monetary policy may be needed to ensure that inflation returns to the target level within a reasonable time". He also said that the Australian economy is experiencing a period of "below-trend growth" and it is expected that this situation will continue. And it is predicted that the unemployment rate will gradually rise to about 4.5% by the end of next year. Because recent data show that inflation may re-enter the target range of 2.0-3.0% during the forecast period.
However, it warned that uncertainties still exist, including the persistence of service price inflation observed overseas, which may lead to a similar situation in Australia. Other uncertainties include the lag effect of monetary policy, the reaction of the labor market to the slowdown of economic growth, and the behavior of enterprise pricing and wage decision-making.
It also expressed concern about the family sector. Given the continuous pressure on China's real estate market, global uncertainties, especially those related to China's economy, are regarded as additional risks.
Overall, inflation is developing in the right direction, but more work needs to be done to bring inflation back to the target range of 2.0-3.0%.
The RBA did not unexpectedly continue to suspend interest rate hikes and did not prevent the AUD from falling sharply. The AUDUSD is currently very close to an 11-month low. The fact that the RBA extended the suspension of interest rates for the third time in a row reinforced people's view that unless some disastrous economic data appeared, the RBA had already raised interest rates. This makes the bullish appeal of the AUD decline. The market will now look for clues about a possible rate cut sometime in 2024.
Finally, investors are now turning their attention from the suspension of the RBA to the second-quarter GDP report released on Wednesday. The economy grew by 2.3% in the first quarter and is expected to slow down to 1.8% in the second quarter. A lower-than-expected growth of 1.8% may put further downward pressure on the faltering AUD.
Technical Analysis
The AUDUSD faced significant selling pressure on Tuesday and extended its intraday losses into the run-up to the New York session. The momentum dragged the AUDUSD's price to the 0.6370 area, close to the year-to-date lows touched in August and supported by several factors.
One such factor is the double-top pattern still in play.
It is worth noting that this is indeed a perfect double top as it has been trending lower and the move below the neckline is not far from the size of the pattern itself, as the structural pattern describes, which is typical of a double top pattern.
Another factor is that the downward crab pattern is not complete.
As we have repeatedly emphasized in previous strategies. One of the main features of the crab pattern is that it will have very long legs. According to our model, the final target for the bears is at D3 (0.6263 level). And only D1 and D2 levels have been tested so far. This means that there is still room for a sharp decline after the rally.
However, the price may be adjusted to 0.6450 before falling, as an engulfing reversal pattern is formed in the 4H timeframe. Currently, a reversal signal is being followed in this descending wave; after testing the support level, there may be an upward trend in the short term, but it could fall back in the later trading. It is recommended to go short at the highs.
Trading Recommendations
Trading direction: Short
Entry price: 0.6435
Target price: 0.6212
Stop loss: 0.6525
Deadline: 2023-09-19 23:55:00
Support: 0.6359, 0.6302, 0.6260
Resistance: 0.6372, 0.6448, 0.6482
