Following the recent price action, AUD/USD could extend the correction lower to the 0.6820 region in the next weeks, suggested FX Strategists at UOB Group.
Key Quotes
24-hour view: “Yesterday, we held the view that AUD ‘could continue to grind higher but a clear break of the major 0.7065 resistance level would come as a surprise’. Our view was not wrong as AUD rose to a high of 0.7043 and the 0.7065 level was unthreatened. That said, the subsequent sharp sell-off that sent AUD plunging to a low of 0.6899 was unexpected. Despite the relatively strong bounce from the low, the underlying tone has weakened considerably and the risk for today is tilted to the downside. From here, barring a move above 0.7010 (minor resistance is at 0.6975), AUD could make another attempt to move below 0.6900 (next support is at 0.6860).”
Next 1-3 weeks: “We detected the start of the positive phase in AUD 3 weeks ago on 19 May (spot at 0.6535) wherein we indicated that ‘outlook for AUD is mildly positive’. Since then, we have tracked the progress of the positive phase and in our latest narrative from Monday (08 Jun, spot 0.6985), we highlighted that ‘while it is premature to call for an end to the positive phase, the rally in AUD appears to be over-extended, both time and price wise’. We added, ‘AUD could move above 0.7030 but prospect for a sustained rise above 0.7065 is not high’. AUD eked out a fresh high of 0.7043 yesterday (09 Jun) before staging a sudden and sharp sell-off that cracked our ‘strong support’ level at 0.6920 (low of 0.6899). The break of the ‘strong support’ level indicates that the 3-week long positive phase has ended and the current movement is viewed as the start of a downward correction phase. From here, AUD could weaken to 0.6820, even as low as 0.6770 but as it is in a correction phase, any weakness could be punctuated by bouts of rebound and the levels mentioned above may not come into the picture so soon. Overall, the current downward bias is deemed as intact as long as AUD does not move above 0.7045. On shorter-term note, 0.7010 is already a strong level.”
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