Holding gains above 0.7250, not out of the woods yet

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  • AUD / USD bounced solidly from the 0.7225 area or multi-week low.
  • The setup favors bearish traders and supports further loss prospects.

The pair AUD/USD it maintained its offered tone heading into the American session and was last seen hovering near the upper end of its daily trading range, just above 0.7250.

A generally positive tone in equity markets turned out to be a key factor that extended some support to the Aussie perceived as riskier on the first day of a new week. This, coupled with a dovish action in the price of the US dollar, helped the AUD / USD pair to recover a portion of Friday’s losses to the lowest level since October 6.

From a technical perspective, last week’s slide confirmed a short-term bearish break below an upward sloping channel extending from the 0.7100 zone, or the annual low set in August. This, in turn, supports the prospects for an extension of the recent sharp pullback from just above 0.7550, or a multi-month high.

The bearish outlook is reinforced by the fact that the AUD / USD pair is trading well below the technically significant moving averages – 100 and 200 day SMAs. Apart from this, the bearish technical indicators are still far from oversold conditions on the daily chart and add credibility to the short-term negative bias.

Therefore, any subsequent positive movement could still be seen as a selling opportunity and risks quickly disappearing near 0.7300. This should now act as a key barrier for the AUD / USD pair, which if cleared could trigger a short covering move and allow the bulls to challenge the 100 DMA, around the 0.7355-60 region.

On the other hand, the 0.7225 area now appears to have emerged as immediate support. This is followed by the 0.7200 level. Some follow-up selling will validate the bearish breakout and make the AUD / USD vulnerable to accelerate the decline towards the 0.7140-35 intermediate support en route to the 0.7100 round level.

Daily chart

Technical levels

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