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“EUR/USD is trading above the 50, 100, and 200 Simple Moving Averages on the 4-hour chart and benefits from upside momentum. The Relative Strength Index is below 70, thus outside overbought conditions.”
“Resistance awaits at 1.1930, the daily high, followed by 1.1965 – the two-year high recorded in mid-August. Further above, the psychologically significant 1.20 level is looming.”
“Support is at 1.1880, a swing high from last week, followed by 1.1850, which was a stubborn cap before the rally. The next levels to watch are 1.1750 and 1.17.”
24-hour view: “Last Friday, we held the view that USD ‘could edge higher but chance for a break of the solid resistance at 107.00 is not high’. While our view was not wrong as the advance in USD stopped at 106.94, the sudden and sharp sell-off that resulted in huge drop of -1.14% (NY close of 105.34) was clearly unexpected. The rapid decline appears to be running ahead of itself and while USD could weaken from here, any weakness is viewed as a lower trading range of 105.00/105.85. In other words, a sustained decline below 105.00 is not expected.”
Next 1-3 weeks: “We noted last Friday (28 Aug, spot at 106.60) that ‘momentum outlook still appears positive but USD has to close above 107.00 before further sustained advance can be expected’. USD subsequently rose to 106.94 before suddenly plunging to a low of 105.18 (closed at 105.34, -1.14%). The risk has shifted quickly to the downside and from here; USD could and test the solid support at 104.70. At this stage, the chance for a sustained decline below this level is not high (105.00 is already quite a strong level). On the upside, the ‘strong resistance’ at 106.30 is likely strong enough to hold, at least for these few days.”
The AUD/USD pair holds the lower ground near mid-0.7350s, extending the corrective decline in early European trading.
The spot witnessed good two-way businesses so far this Monday, initially extending last week’s bullish momentum to clinch fresh multi-month highs at 0.7382 amid broad-based US weakness.
Last week’s dovish narrative thrown in by the US Federal Reserve (Fed) Chair Jerome Powell continued to weigh negatively on the greenback. Powell’s new monetary policy framework fuelled expectations of a prolonged period of low-interest rates.
Dovish Fed expectations and coronavirus vaccine hopes boosted the Asian stocks while stronger-than-expected official Chinese Manufacturing and Services PMIs also added to the optimism, underpinning the higher-yielding aussie.
The gains in the major, however, were short-lived, as the sellers returned amid a profit-taking spree after the price surged to the highest since December 2018. Also, a minor bounce seen in the US dollar against its main peers collaborated with the retracement.
Investors also weighed in the tensions between Australian and its biggest trading partner, China, after Beijing launched an anti-subsidy investigation on some wine imports from Australia.
Looking ahead, markets await the US macro releases and the Reserve Bank of Australia (RBA) policy decision for the next direction in the prices.
AUD/USD Technical levels
The bears now look to test the 5-DMA at 0.7315, below which the 0.7300 level could be tested. To the upside, a clearance of the 0.7382 hurdle, the confluence of 20-month high and daily R2 will pave the way towards 0.7400.
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