Today’s Forex Guide

How low can Mr. Aussie go?


Jul.06.2015

10:10 AM (EST) Update

Fellas, guess who reached our bearish target and 9 year low of 0.75? That's right, it's our one and only Mr. Aussie as he dances against Ms. USA on the forex dance floor. The new question is how low can Mr. Aussie's dancing skills take him now that he has cleared out this important psychological support level. Here are a few nuggets of wisdom on the AUD/USD pair.

 

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Fundamental Analysis

 While all the noise in the market is revolving around Greece and the fact that they voted NO to the referendum on Sunday, I would like to let my EUR/USD position run without getting emotional by watching the European forex dancers and instead discover new opportunities in the Land Down Under.

Chinese Troubles & Mr. Aussie

Last week’s free fall in China’s stock market has also been sending new vibes on the forex dance floor. So far, Chinese equities are down nearly 30% from their June 12 high, amounting to a loss of roughly $2.7 trillion in less than a month.

Because of that, Chinese government officials rushed to come up with easing effort over the weekend, announced a suspension of initial public offerings, convinced several brokerage firms to set up a fund of at least $19.4 million to buy blue-chip stocks in hopes of putting an end to the free fall.

Mr. Aussie is among several financial analysts that are loosing faith in Chinese government and as his major trading buddy, this can obviously have a negative effect on the Australian currency.

Australia's Economic Data

The past couple of retail sales figures didn’t turn out so well. Last Thursday's report printed a 0.3% down tick  versus the projected 0.5% gain.

This week all eyes are on the Reserve Bank of Australia (RBA)'s rate statement on Tuesday at 5:30 AM GMT in which they disclose the outcome of their decision on interest rates and commentary about the economic conditions that influenced their decision. Most importantly, it discusses the economic outlook and offers clues on the outcome of future decisions.

US Potential Rate Hike

There has been talks about a Fed interest rate hike as soon as September, but the disappointing June jobs report might discourage Fed officials from hiking interest rates this early. If the rate hike actually comes through, we could see more US dollar strength which would only mean more lows for the AUD/USD pair.

Oily Price Actions

While investors are impatiently awaiting a final result from the Iran nuclear negotiations, Iran’s deputy oil minister for planning and supervision, Mansour Moazami, mentioned in an interview that the country plans on ramping up its oil production to 2.3 million barrels a day. Apart from that, Iran is also pushing the other members of the Organization of Petroleum Exporting Countries (OPEC) to increase production levels, effectively leading to a rise in supply enough to edge out the competition from U.S. oil producers.

As per the law of supply and demand, an increase in supply without much change in demand would drive oil prices down. So with the recent oil price slide and the way it has affected other commodity prices and overall inflation levels, you could tell that Iran’s moves might mean trouble.

Sum it up Yo!

What this could all mean for the AUD/USD pair? More negative Aussie/ Chiense economic data combined with a Fed rate hike and continued drops in oil prices could  ultimately push Mr. Aussie lower as he dances against Ms. USA.

Technical Analysis

The AUD/USD pair finally broke below the important 0.76 level which could mean the beginning of a new downtrend and an end to our range.  The pair tested this level five time since March 2015, making this level an extremely important boundary for FX traders, so this break is a huge deal.

AUD/USD Daily

Remaining below the Ichimoku cloud with the RSI heading towards the oversold zone, we could see further drops towards 0.7150 and 0.64 in extension.

Market Sentiment: Bearish

Forex Trading idea

For a long term trade, wait for a concrete down signal this week. Follow me on Twitter to get the notification.

Alternatively, if the pair suddenly decides to go nuts and move above the Ichimoku cloud we could see new rallies back towards the 23% Fibonacci at 0.8025

Where to set your stops and limits:

Support Levels Turning Point Resistance Levels
0.7150 0.76 0.8025
0.64 0.78 0.82

*Important Note: The support and resistance levels are not suitable for all traders and largely depend on your account size, margin and leverage. Book a private lesson to learn how to personalize your account based on our trading guide.

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