AUD/USD: Undeterred By Worsening Business Confidence

AUD/USD suffered a sell-off yesterday, hitting a low of 0.9135 following the failure to break 0.92 convincingly. Prices continued lower during early Asian session today unprovoked, possibly due to the continuation of technical bears seeking the 0.91 round figure target. Prices did manage to hit the 0.91, and profit taking actions were spotted, sending price back up towards the soft resistance of 0.913.

A good evidence that we’re currently under purely technical bearish influence can be seen from the fact that price continued its pullback to 0.913 after tagging 0.91 briefly, despite the worsening NAB Business Confidence, which stood at -3 and the worst we’ve seen in 2013. If current sell-off was due to underlying bearish sentiment, the negative economic news release should have sparked some bearish overreaction. The lack of any bearish reaction, and the continued ability of price to rebound towards 0.913 post news release affirms the assertion that the rejection of 0.92 towards 0.91 is purely technical in nature, and so is the rebound from 0.91.

This may seem frivolous to some, but it is important to note that this would mean current bullish sentiment post RBA rate cut last week is still in play. The same underlying bullish sentiment that allowed AUD/USD to rally despite suffering a major employment change disappointment; the same bullish sentiment that allow price to hit 0.92 from below 0.89 last Tuesday. With that in mind, it will be too premature to simply assume that yesterday’s decline may have further legs to run lower, and place a higher likelihood that 0.913 may be broken for a retest of 0.92 once again.

Hourly Chart
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Stochastic readings from Hourly Chart agrees with such an outlook, with readings signalling a bullish cycle with both Stoch and Signal lines crossing the 20.0 mark. If Stochastic indicator is reliable, current bullish cycle may be able to let us reach 0.918 at the very minimum before hitting Overbought. From a price action point of view, if 0.913 is broken, 0.918 will be the first significant resistance in the way of the climb towards 0.92. Should 0.92 is broken, there will not be any immediate overhead resistance and bulls may be able to resume last week’s pace of ascension before the underside of current rising trendline is reached.

Despite the assertion of strong bullish sentiment backdrop, the chance of 0.913 resistance holding remains. In this scenario, 0.91 will open up as the next bearish target, with 0.908 the next level of support below 0.91. Should overall bullish sentiment remain, it will not be difficult to imagine prices rebounding at any of the aforementioned supports above 0.90, with a break of 0.90 (post RBA rate cut high) only able to invalidate/negate the bullish support and usher us back to the previously held bearish sentiment.

Daily Chart
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Daily Chart is hinting of a weak “Evening Star” candlestick pattern which is a bearish reversal signal. This pattern is considered weak as the right Candlestick does not engulf the original bullish candle on the left of the star. Stochastic readings are currently pointing higher, but we have precedence where a stoch peak is formed without entering into the Overbought region, yet producing spectacular bearish follow-through. As such, we could potentially still see strong bearish cycle from here on despite conventional knowledge telling us that bearish follow through may be found wanting.

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