AUD/USD bulls have done a great job yesterday, pushing back up above 0.900 during the end of US session, clawing back all the losses suffered after prices tanked on weaker than expected HSBC/Markit Chinese Manufacturing PMI. Bullish risk appetite during US session definitely helped, but it should be noted that the majority of the recovery a couple of hours after the initial drop, even before European session started. As such, credit should be given to bulls whose strength is underlined by the fact that prices managed to climb up at a time when stocks were extremely bearish.
Hence, one can understand why 0.8990 support level remain intact despite pressure coming down from Channel Top. As it is right now, Stochastic readings are already below 50.0; more than half of the bearish cycle is gone yet 0.8990 still stands. As Channel Top continue to push lower, the likelihood of a bullish break above Channel Top becomes higher, whereas even in the event that 0.8990 is broken, there is still no guarantee that a move towards Channel Bottom may be possible, with significant support can be expected around 0.897 and 0.895.
That being said, the surprising robustness of AUD/USD bulls is surprising especially given that recent Australia economic data hasn’t been the most bullish. As such, the long-term bullish prospect of AUD/USD remains highly suspect ad we could still see a break of Channel Top unable to push much higher and falter at any of the numerous soft resistances between 0.901 – 0.907.
Direction on the Daily Chart is mixed. The bullish push from late 24th Jan can still be regarded as remaining in pay as the 1st significant support level (in the form of consolidation between 7th to 11th Feb) is still intact. However, the same could be said about the Evening Star bearish reversal candlestick pattern under 0.907 resistance as yesterday’s bullish candle failed to overcome the candlestick just before it which act as the confirmation for the Evening Star pattern. Similarly, Stochastic readings which is bearish may also reverse here as we’ve seen points of inflexion around current levels back around 12th Dec and 10th Jan.
Nonetheless, for long-term bears, recent recovery in AUD/USD may be attractive for them to sell into, as their long-term outlook for AUD/USD will be somewhere closer to low 0.80s, with these traders expecting weaker AUD due to weaker economy and stronger USD due to QE taper and a recovering US economy. If this is indeed the outlook, then current levels with stop loss above 0.907 (or even upwards to 0.917) will present a decent risk/reward ratio. However, conservative long-term traders may wish to wait for signs of stronger short-term bearish momentum which may reduce anxiety as the risk of their trades getting out of the money will be lower, but that would also means that their profit may be slightly lower.
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