AUD/USD Forex Technical Analysis – Bearish Outlook Continues as Sentiment Erodes

The Australian Dollar is under pressure on Tuesday after analysts at the National Australia Bank (NAB) said the Aussie was the market’s “whipping boy” in a sell off and that further lows were possible in the near-term as sentiment remained fragile.

Sellers were also reacting to last Friday’s robust jobs report that likely cemented the chances of a 75-basis-point rate hike by the U.S. Federal Reserve in early November. Weak data from China over the weekend is also souring the mood for investors.

At 04:44 GMT, the AUD/USD is trading .6255, down 0.0044 or -0.70%. On Monday, the Invesco CurrencyShares Australian Dollar Trust ETF (FXA) settled at $62.43, down $0.56 or -0.89%.

In economic news, Australia’s NAB Business Confidence index dropped from 10 to 5 in September. Business Conditions rose from 22 to 25. Trading conditions rose from 29 to 38. Profitability conditions were unchanged at 19 and Employment conditions dropped by 17 to 16.

Traders are expecting the AUD/USD to remain under pressure over the near-term because the threat of a global recession is weighing on demand for commodities and higher-risk assets.

Furthermore, traders are not expecting the Reserve Bank of Australia (RBA) to keep up with the Federal Reserve when it comes to the size of future rate hikes. This will tighten the spread between Australian and U.S. Government bonds, making the U.S. Dollar a more attractive currency.

Daily Swing Chart Technical Analysis

The main trend is down according to the daily swing chart. The downtrend was reaffirmed earlier in the session when sellers took out the April 21, 2020 main bottom at .6254. A trade through .6548 will change the main trend to up.

The nearest major resistance is the long-term Fibonacci level at .6466.

Daily Swing Chart Technical Forecast

Trader reaction to .6299 is likely to determine the direction of the AUD/USD on Tuesday.

Bearish Scenario

A sustained move under .6299 will indicate the presence of sellers. Taking out the long-term main bottom at .6254 with conviction will indicate the selling pressure is getting stronger. A breakdown at this level could trigger an acceleration to the downside since the next major support doesn’t come in until .5980.

Bullish Scenario

A sustained move over .6299 will signal the presence of counter-trend buyers. If this generates enough upside pressure, we could see a quick rally into .6427. Overtaking this level will likely lead to a test of .6466, where sellers are likely to return.

Side Notes

A close over .6299 will form a closing price reversal bottom. If confirmed, we could see a 2 to 3 day counter-trend rally. This is likely to occur if short-sellers decide to square up their positions ahead of Thursday’s major U.S. consumer inflation report.