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Cuts a portion of modest intraday gains, downside potential intact

  • AUD / USD gained some positive traction on Wednesday, although it struggled to capitalize on the move.
  • The setup appears to tilt firmly in favor of bearish traders and supports the prospects for further losses.
  • The bears could still wait for a sustained break below the 0.7220 support before placing aggressive bets.

The pair AUD/USD struggled to capitalize on its modest intraday gains and has now retreated around 20 pips from daily highs.

Following a brief consolidation during the first half of trading action on Wednesday, the US dollar regained positive traction and spiked to the highest level since early November 2020. This, in turn, was seen as a key factor acting. as a headwind for the AUD / USD pair and capped the upside.

However, a solid rally in equity markets prevented traders from placing new bets around the safe-haven dollar and continued to provide some support to the perceived riskier Aussie. The AUD / USD pair, so far, has managed to preserve modest gains and was last seen trading just below 0.7250.

Given the drop in rejection overnight from the 0.7310-15 supply zone, the short-term bias still seems skewed in favor of bearish traders and supports the prospects for further losses. The negative outlook is reinforced by the fact that the oscillators on the hourly / daily charts remain in bearish territory.

That said, it will still be prudent to wait for a sustained break below the horizontal support at 0.7220 before positioning for any further declines. This is closely followed by the 0.7200 mark, which if decisively broken will reaffirm the bearish bias and lead to aggressive technical selling.

The AUD / USD pair could accelerate the slide towards the intermediate support test near the 0.7135-30 region. The downward trajectory could extend further and allow bearish traders to point backward challenging YTD lows around 0.7100, last touched on August 20.

On the other hand, immediate resistance is pegged near the 0.7290 region. Any subsequent bullish movement could continue to find new offers near the 0.7310-15 area. A sustained move further could trigger a short hedging move and push the AUD / USD pair towards the 0.7365 area en route to the 0.7400 level.

4 hour chart

Technical levels

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