AUD Fails to Break Crucial Trendline, Eyes on Fed Risk

AUDUSD Analysis and Talking Points

• Australian Dollar Fails to Break Key Resistance
• Fed Risk Looms

AUSTRALIAN DOLLAR FAILS TO BREAK KEY RESISTANCE

Heightened US-China trade tensions keep the Australian Dollar on the backfoot, with the currency shedding 0.7% over the past two sessions. In turn, AUDUSD failed to make a break above the key 2018 high trendline, which has remained firm thus far, consequently, keeping the Australian Dollar stuck in its bearish trend. However, a move back towards the 2018 lows may be out of the question for now, as large net Aussie short positioning ($4.9bln), alongside a bid in copper and oil prices may limit downside.

FED RISK LOOMS

Tomorrow will see the latest Fed monetary policy meeting, in which the central bank is expected to raise rates by 25bps. Given that this is 100% priced in by the market, focus will be on the monetary policy statement as well as the Fed dot plot projections. With US yields rising to multi-year highs with the 10year yield above 3%, markets are seemingly pricing in a more hawkish Fed.

AUDUSD PRICE CHART: Daily Time Frame (October 2017-September 2018)

WHERE NEXT FOR AUDUSD?

51.1% of traders are net-long with the ratio of traders long to short at 1.05 to 1. The number of traders net-long is 4.9% higher than yesterday and 106.8% higher from last week, while the number of traders net-short is 2.9% higher than yesterday and 53.4% higher from last week.

We typically take a contrarian view to crowd sentiment, and the fact traders are net-long suggests AUDUSD prices may continue to fall. Traders are further net-long than yesterday and last week, and the combination of current sentiment and recent changes gives us a stronger AUDUSD-bearish contrarian trading bias.


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