AUD/USD analysis: bearish potential to increase on a break below 0.7200

Valeria Bednarik FXStreet

AUD/USD Current price: 0.7227

Signs of Chinese economic slowdown and plummeting commodities undermined Aussie.
AUD/USD retracement from 0.7300 looks corrective in the longer term.

The Australian dollar eased against the greenback for a second consecutive day, with the pair finishing the week at 0.7275, as Chinese inflation released at the beginning of the day, indicated slowing economic growth. Consumer prices were up in October 0.2% as expected, well below September's 0.7%, although the yearly figure remained unchanged at 2.5%. Producer prices, however, rose by less-than-expected up 3.3% YoY, also below the previous 3.8%. Furthermore, the PBoC said that the economy faces downward pressure, in its latest monetary policy report, adding that it would encourage financial institutions to increase lending to smaller, privately held businesses. Trade tensions with the US are among the reasons behind the mentioned slowdown. Adding to Aussie's weakness, commodities were under strong selling pressure Friday, with US oil breaking below $60.00 a barrel. Australia won't release macroeconomic data this Monday, while China will only offer some minor money figures.

The pair retreated from a weekly high of 0.7302 and also failed to sustain gains above its 100 DMA, yet technical readings in the daily chart are far from losing the positive tone, as the 20 DMA maintains a firm bullish slope well below the current level, while technical indicators have barely retreated from overbought readings, holding well into positive ground with limited downward strength. Furthermore, the pair remains above the 61.8% retracement of its September/October decline at around 0.7200 now the immediate support. Below the level, bears will have more chances while above 0.7250 the scale will lean in favor of bulls. Shorter term, and according to the 4 hours chart, the bearish case is firmer, as the pair broke below its 20 SMA, now losing directional strength above the current level, while technical indicators maintain their bearish slopes well into negative ground.

Support levels: 0.7200 0.7170 0.7135

Resistance levels: 0.7250 0.7280 0.7315

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Author

Valeria Bednarik

FXStreet

Valeria Bednarik was born and lives in Buenos Aires, Argentina. Her passion for math and numbers pushed her into studying economics in her younger years.

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