Australian Dollar was in steady decline since Mid April, where price went down from 1.06 and started the slide which we are currently in. However, past few trading days have been relatively encouraging, with price rebounding from the recent 0.96 low to reach 0.975. Even though the 23rd May rebound didn’t accomplish much other than affirming that the decline remains in play, price nonetheless was stable between 0.96 – 0.97 for the next few days, giving hope to bulls that price may be able to rebound back up eventually.
That hope was dashed this morning. Despite trading higher yesterday, bulls were still unable to test the previous swing high of 24th May, and failed to even test 0.97. This put 0.96 at risk which bears duly obliged. This morning’s data did bulls no favors, pushing price below 0.96 and forged a new 2013 low.
The Westpac Leading Index came in at 0.2%, a sharp decline from last month’s 0.6%, indicating further slowing down in Australia Economy. This does not sound truly negative as the figure is still in the black, however given current bearish backdrop of AUD/USD, it is not surprising that traders latched onto this figure and use it as an opportunity to sell. Other data that came out this morning were not bullish either – HIA Home Sales rose 3.9% vs a 4.2% previous, while Construction Work Done fell 2% Q/Q vs a -0.1% decline in previous quarter, and a total surprise considering that expectations were calling for a 1.0% increase.
All 3 data collaborated to push AUD/USD deeper into the red, and looks likely to entrench AUD/USD firmly below 0.96 despite Stoch readings being deeply in the Oversold region.
From a weekly chart perspective, the 0.96 level is significant, but conservative traders may wish to seek further confirmations on the possibility of bearish breakout as previous attempts to break 0.96 resulted in long tails, with the Oct 2011 attempt reaching as low as 0.9375. However pace of bearish movement remains robust, and there is no evidence of slow down currently.
Fundamentally, Australia is weakening and that has been the theme since the start of 2013. Central Bank RBA is widely expected to embark on another rate cut in the 2nd half of 2013, and that will continue to add bearish pressure. Furthermore, the rising USD is certainly not helping, which is pulling the ailing AUD/USD significantly. Moving forward, continue to watch out for Aussie economic fundamentals as traders will more than likely overreact towards bearish news. Bullish numbers may help to bring AUD/USD higher but effects may not be as lasting as compared to bearish news, which would actually provide good trading opportunities especially if resistances are not broken.
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