The Australian Dollar has come under renewed pressure as traders attempt to find new gains in the wake of a broad-based recovery, with strong resistance seen at the 0.7240 level and a key test of support due at the 0.6980 level.
Given its lackluster performance over recent months and current outlook, we maintain our sense of caution on AUD/USD and advise traders to sound out potential support levels ahead before looking for an opportunity to buy.
The Australian Dollar has been having a tough time in the wake of the sell-off that saw it fall to 0.7040 early last month. Traders have come to see this level as a potential bottom and so have allocated resources into the commodity-linked currency, with AUD/USD now sporting one of its strongest daily volumes in months and rising to levels unseen since mid-February ahead of US Fed Chairman Yellen’s testimony on Wednesday morning.
In past weeks, we’ve seen an attempt at pushing above 0.7240 fail but with Yellen’s expected emphasis on a “normalization” in interest rates, traders are looking for more certainty before going long again.
AUD/USD Daily Chart
With the US Dollar dominating market sentiment, AUD/USD has found fresh support at 0.7240 on a number of occasions over the past month but we have yet to see a convincing break above 0.7240 that gives traders confidence this level is unlikely to be tested again.
Eyes will be on Australia’s current account deficit figures due today, which should shed further light on the strength of the economy and give us a better indication as to when AUD/USD is likely to find its next level of support.
We maintain a bearish bias and recommend traders to look for an opportunity to take profits with a sell setup established at the 0.7100 level. Should a convincing break below 0.7030 be seen, then traders should aim to get out of the currency if possible at the 0.6980 level, which represents the key support level that was tested this week and may provide a clue as to whether we’ll see support at or around 0.7100 again in the coming months.
Order Flow
In terms of AUD/USD’s order flow, we saw a net short position of (-1,871) contracts build in overnight trade, which adds to the bearish sentiment that has been seen in past weeks.
With the current setup skewed on the USD side, we see AUD making its way back to 0.6980 before looking for a sizable rally to the 0.7100 level again. The only thing that keeps us from fully buying into this view is that no buyers immediately materialized after our buy signal last week, which would further strengthen this view and lead to further weakness for AUD/USD as traders have probably taken note.
GBP/USD
The Pound has come under renewed pressure as traders attempt to find new gains in the wake of a broad-based recovery, with strong resistance seen at the 1.5200 level and a key test of support due at the 1.4900 level. Given its lackluster performance over recent months and current outlook, we maintain our sense of caution on GBP/USD and advise traders to sound out potential support levels ahead before looking for an opportunity to buy into the recovery story again.
The Pound has been having a tough year so far and it’s been down to its poor performance in the first quarter of the year which saw it fall to 1.5020 on a number of occasions. The commodity-linked currency is still sporting some of its weakest daily volumes in months, which is not surprising given recent market volatility and its lackluster rally.
GBP/USD Daily Chart
With bullish news on expected inflation data from the UK due later today, traders will be looking for more reinforcement into their forecast of further gains in the coming weeks. While this would likely see a retest of 1.5200, the outlook remains bearish and traders should look to get out for a small gain before fresh selling comes in.
With the US Dollar dominating market sentiment, GBP/USD has found fresh support at 1.5000 on a number of occasions over the past month but we have yet to see a convincing break above 1.5200 that gives traders confidence this level is unlikely to be tested again.
