Australian Dollar: Pullback risk toward 0.7120 against US Dollar – UOB

United Overseas Bank’s (UOB) Quek Ser Leang and Lee Sue Ann note AUD/USD briefly broke above 0.7200 to 0.7208 before reversing to 0.7158. Intraday, they expect further pullback toward 0.7145, with limited downside and resistance at 0.7170/0.7185. Over the next weeks, they judge that the prior AUD strength has ended, with scope for a deeper retreat toward 0.7120.

Australian Dollar retreat after highs

"24-HOUR VIEW: AUD rose to a high of 0.7198 last Thursday. On Friday, we highlighted the following: “Despite posting fresh three-month highs, upward momentum is deteriorating, with momentum indicators showing negative divergence. That said, there is scope for AUD to rise above 0.7200. However, AUD is unlikely to maintain a foothold above this level. Any further advance is also unlikely to reach 0.7220. Support is at 0.7185; a breach of 0.7175 would indicate that the immediate upward pressure has eased.” AUD subsequently rose briefly to 0.7208 before pulling back sharply to close at 0.7158 (-0.50%). Today, AUD could continue to pull back toward 0.7145. Based on the prevailing momentum, a clear break below this level appears unlikely. Resistance is at 0.7170, followed by 0.7185."

"1-3 WEEKS VIEW: We have been holding a positive AUD view since the start of the month. Last Friday (28 Aug, spot at 0.7195), we highlighted that “upward momentum is deteriorating amid negative divergence on momentum indicators.” However, we pointed out that “as long as AUD holds above 0.7160 (‘strong support’ level), there is a chance for AUD to test 0.7220 before the risk of a pullback increases.” AUD then rose to a high of 0.7208 before pulling back sharply, breaking below 0.7160 with a low of 0.7156. The price action suggests that the almost month-long AUD strength has ended. Given the overbought conditions and negative divergence, AUD could pull back further toward 0.7120. It is unclear for now whether AUD could break clearly below this level. On the upside, a breach of the ‘strong resistance’ level, now at 0.7200, would mean that AUD is more likely to range-trade rather than continuing to pull back."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)