AUD/USD RSI to Offer Bearish Signal on Break of Trendline Support

Australian Dollar Talking Points

AUD/USD attempts to retrace the bearish reaction to Australia’s Employment report, but the monthly opening range keeps the downside targets on the radar as the exchange rate pullbacks ahead of the October-high (0.6930).

AUD/USD RSI to Offer Bearish Signal on Break of Trendline Support

AUD/USD traded to a fresh monthly low (0.6770) as Australia unexpectedly shed 19.0K jobs in October, and signs of slower growth may push the Reserve Bank of Australia (RBA) to further insulate the economy as the updated Statement on Monetary Policy highlights “a case for further easing.”

At the same time, signs of subdued inflation may become a growing concern for the RBA as the Wage Price Index (WPI) narrows to 2.2% from 2.3% per annum in the second quarter of 2019.As a result, Governor Philip Lowe and Co. may continue to endorse a dovish forward guidance as the board remains “prepared to ease monetary policy further if needed.”

Doubts surrounding “phase one” of the US-China trade agreement may also sway the RBA as President Donald Trump warns that “if we don’t make a deal, we’re going to substantially raise those tariffs.” With that said, the ongoing negotiations may produce headwinds for the Australian dollar as China Ministry of Commerce spokesperson, Gao Feng, insists that “the level of tariff rollback will fully reflect the importance of the phase one agreement.”

In turn, AUD/USD may face a more bearish fate ahead of the next RBA meeting on December 3, and the monthly opening range suggests the correction from the yearly low (0.6671) has run its course as the exchange rate continues to pullback from the October-high (0.6930).

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AUD/USD Rate Daily Chart

Source: Trading View

  • Keep in mind, the AUD/USD rebound following the currency market flash-crash has been capped by the 200-Day SMA (0.6937), with the exchange rate marking another failed attempt to break/close above the moving average in July.
  • A similar scenario appears to be taking shape as the correction from the yearly low (0.6671) fails to spur a test of the simple moving average, which largely lines up with the Fibonacci overlap around 0.6950 (61.8% expansion) to 0.6970 (23.6% expansion).
  • In turn, the monthly opening range raises the scope for a further decline in AUD/USD as the exchange rate pullback from the October-high (0.6930) and snaps the upward trend from the previous month.
  • Will keep a close eye on the Relative Strength Index (RSI) as it continues to track the upward trend carried over from August, but the oscillator may offer a bearish signal should the indicator snap trendline support.
  • As a result, the rebound above the 0.6800 (61.8% expansion) handle may prove to be short-lived, but need a break/close below the Fibonacci overlap around 0.6720 (78.6% expansion) to 0.6740 (38.2% expansion) to keep the downside targets back on the radar.

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— Written by David Song, Currency Strategist

Follow me on Twitter at @DavidJSong.

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