Forex Trading Idea – AUD/USD
Strategy
Sell AUD/USD at 0.6300 with a stop above 0.6455. The target is at 0.5950. Longer term target is set at 0.5505.
Technical View
Since the beginning of 2020, price has been on a decline. The decline reached a low of 0.5505 on 19 March 2020. From this 17-year low, price made a recovery. Price reached a high of 0.6448 on the 14 of March 2020. This high is also the Fibonacci 62% of this year decline. The recovery was in the form of a 3-wave structure. This is a sign of a correction. If the recovery to 0.6448 was a correction, it means that the trend is down and a low below 0.5505 may be required to end the downtrend. The 3-wave movement also self-confirms itself. The second rally is 127% of the first rally. The correction of the first rally came down to the Fibonacci 38% correction point. Beside this 2 Fibonacci points acting as confirmation of a possible high, we have a Bearish Engulfing candlestick price pattern. This is also a reversal signal, hinting that the rally could be over.
Stochastic has reached the overbought extreme and could be having a bearish crossover soon. This is a hint that the next direction of price is lower. MACD has just turned bullish but the faster line is already declining. MACD’s histogram has been declining. This is a sign that upward momentum is weakening.
Fundamental View
When the US started a trade dispute with China last year, the US economy was on a strong footing. While the trade dispute did slow down economic activity in the US, economic activity in China was also affected. As China is Australia biggest trade partner, the Australian economy was affected indirectly from the almost one and a half year trade dispute. The Australia economy also suffered from a collapse of a housing boom in 2018. The Aussie dollar had declined against the US dollar from a high of 0.8135 on 1 Jan 2018 to the low of 0.5505 in March of 2020 as a result of the Australian economic slow down.
The ongoing coronavirus is likely to add uncertainty to the financial market. It could bring global economy into a deep recession depending on how it pans out. During this period, the US dollar is likely to have a greater demand than the Aussie dollar due to its status as a safe haven. The Aussie on the other hand is more of a risk currency and will tend to flourish when market risk appetite is high.