AUD/USD Trend Reversal or Just a Bigger Pullback?

Earlier today, the Australian Bureau of Statistics showed that the consumer price index dropped by 0.2% in the first quarter, missing analysts’ forecast. Additionally, consumer prices (year‐on‐year) rose by 1.3% in the first three months of the year also disappointing expectations. Thanks to these numbers, the Australian dollar declined sharply against the greenback, which pushed AUD/USD under previously‐broken important line. Is it enough to trigger further deterioration in the coming days?

In our opinion, the following forex trading positions are justified – summary:

EUR/USD: short (stop‐loss order at 1.1512; initial downside target at 1.0572)
GBP/USD: none
USD/JPY: none
USD/CAD: none
USD/CHF: none
AUD/USD: none

EUR/USD

Although EUR/USD gave up some gains yesterday, currency bulls didn’t give up and the pair rebounded earlier today. Taking this fact and buy signals into account, we think that what we wrote in our previous alert is up‐to‐date:

(…) the exchange rate may extend gains and climb to the upper border of the purple declining trend channel in the coming days. Nevertheless, even if we see such price action, sell signals generated by the weekly indicators suggest that further deterioration is just a matter of time.

Very short‐term outlook: bearish
Short‐term outlook: bearish
MT outlook: mixed with bearish bias
LT outlook: mixed

Trading position (short‐term; our opinion): Short positions (with a stop‐loss order at 1.1512 and the initial downside target at 1.0572) are justified from the risk/reward perspective.

USD/CHF

On the daily chart, we see that USD/CHF extended losses earlier today, which in combination with the current position of the indicators (sell signals remain in play) suggests that lower values of the exchange rate are still very likely. If this is the case and the pair declines further, the initial downside target would be around 0.9670, where the green support line (marked on the weekly chart) currently is.

Very short‐term outlook: mixed with bearish bias
Short‐term outlook: mixed
MT outlook: mixed
LT outlook: mixed

Trading position (short‐term; our opinion): No positions are justified from the risk/reward perspective at the moment.

AUD/USD

Looking at the weekly chart, we see that AUD/USD extended losses this week, which resulted in a drop not only below previous highs, but also under the upper border of the rising purple trend channel. Although this is a negative signal, it would change into bearish only if the exchange rate closes the week below this important line.

Will we see such price action? Let’s examine the daily chart and look for more clues about future moves.

On Monday, we wrote the following:

(…) the pair dropped under the lower border of the consolidation, which in combination with sell signals generated by the indicators suggests further deterioration. If this is the case, the initial downside target would be around 0.7597, where the 23.6% Fibonacci retracement (based on the entire JanApr rally) is.

From today’s point of view, we see that the situation developed in line with the above scenario and AUD/USD declined sharply earlier today. With this move, the pair approached our downside target, however, there are no buy signals that could encourage currency bulls to act, which suggests that we may see a test of the blue support line based on the previous lows in the coming day(s).

Very short‐term outlook: bearish
Short‐term outlook: mixed MT
outlook: mixed LT outlook: mixed

Trading position (short‐term; our opinion): No positions are justified from the risk/reward perspective at the moment.