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AUD/USD ripe for a retracement within bearish channel; 0.7160 is key

  • AUD/USD has reached  the 61.8% and ripe for a retracement  should trade truce speculation turn out to be a false-start.  
  • Eyes on USD/CNH, US midterms, China and US stocks.

AUD/USD has started out the week heavy after meeting a high of 0.7258 on Friday and sliding after an upside surprise in the US nonfarm payrolls data. At the same time, Larry Kudlow of the NEC confirmed on financial media that he wants to keep expectations low on US-China talks which are an additional weight for the Aussie. AUD/USD made a subsequent low of 0.7182.

We are entering the US midterms now and China is going to be a hot topic for markets this week. The recent rumors of a US-China trade truce could be speculated to just be an attempt to talk up the stock market ahead of the election while we await the outcome of the G20 summit on the 26th November. The Larry Kudlow headlines sent stocks to their lows on Friday and the Aussie is likely to rack their performances this week.  

Eyes on USD/CNH

The Chinese currency will also continue to play out its part in the Aussie’s fate. USD/CNH has dropped significantly to below 6.90, keeping a safe distance from the 7.00 hurdle which has lifted AUD/USD through the 0.72 handle and until there is clarity o the US/Chinse trade dispute, the yuan and Aussie are likely to remain on the back foot within their longer-term bear ranges.

AUD/USD levels

  • Support levels: 0.7170, 0.7120, 0.7080.
  • Resistance levels: 0.7210, 0.7250, 0.7290.

Valeria Bednarik, Chief Analyst at FXStreet notes that the pair is currently around the 61.8% retracement of its September/October decline at 0.7200:

  • The daily chart shows that if flirted with a bearish 100 DMA before retreating but settling well above its 20 DMA.”
  • “Technical indicators have pulled down from daily highs but remain within positive levels barely losing their bullish momentum near overbought territory.”
  • “The bearish case could return if the pair losses quickly the 0.7160 level at the beginning of the week, with the next support then being the 0.7100 level, while a more sustainable bullish trend will appear on a definitive break above 0.7250.”

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