AUDUSD Retreats as Bears Control the Game
It’s been an interesting start to a busy week for AUDUSD. The currency pair gapped lower today and opened 46 pips below Friday’s close at 0.6464 following the disappointing PMI reports from China over the weekend. However, it traded higher following the negative Caixin PMI.
The privately-produced manufacturing PMI printed at 40.3 this morning. Not only did it miss the forecast at 46.1. It also marked the lowest reading the report has printed since its inception in 2004. It’s worth pointing out that AUDUSD traded 84 pips higher from its opening price despite the report. Why did the market shrug off the negative data?
For one, the largely-disappointing PMI reports over the weekend served as precedent. It would seem that market participants had already expected today’s report to fall short of expectations. This is also the first report that takes into consideration the effects of the coronavirus outbreak. Due to disruptions in the supply chain in China, it’s no surprise that manufacturing in Australia’s largest trading partner slowed.
Secondly, the Reserve Bank of Australia (RBA) is scheduled to make its interest rate statement tomorrow at 3:30 am GMT. The recent reports from China and the effect of the bushfires in Australia are said to be enough for RBA Governor Lowe to announce a 25 basis point-rate cut tomorrow. There are also speculations of a concerted effort from major central banks to cut rates in order to help stimulate economic growth in the midst of the coronavirus outbreak. The uptick in AUDUSD in this morning’s session could be driven by profit-taking ahead of the highly-important central bank announcement.
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By using the Fibonacci retracement tool and drawing from the high of December 12 to the low of February 28, we can see that AUDUSD could soon find resistance in the Fib levels.
A closer look at the 1-hour chart shows a confluence of resistance between the 38.2% and 50% Fib levels. This price, between 0.6650 and 0.6690, also coincides with the falling trend line when you connect the highs of February 25, February 27, and February 28. The 100 SMA also seems to align with this price. Reversal candlesticks at this price could indicate that AUDUSD may re-test its February 28 lows at 0.6433 or maybe even establish new decade-lows.
On the other hand, a strong close above 0.6580 would invalidate this bearish assumption. It could mean that AUDUSD may soon rally to its February 25 highs around 0.6620. This could be sparked by a surprise announcement from the RBA to keep rates on hold at 0.75%.