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AUD/USD Decline Following US NFP Report Brings July Low in Focus

Australian Dollar Talking Points

AUD/USD gives back the advance from the start of the month following the better-than-expected US Non-Farm Payrolls (NFP) report, and the exchange rate may trade to fresh yearly lows throughout the second half of 2021 there appears to be a shift in the broader trend.

Technical Forecast for Australian Dollar: Bearish

Keep in mind, a head-and-shoulders formation took shape in the first half of 2021 as AUD/USD traded to a fresh yearly low (0.7532) in April, but the exchange rate negated the key reversal pattern following the failed attempts to close below the neckline around 0.7560 (50% expansion) to 0.7570 (78.6% retracement).

Image of AUD/USD daily chart

Source: Trading View

Nevertheless, AUD/USD broke below the neckline in June to trade below the 200-Day SMA (0.7599) for the first time in over a year, with the decline in the exchange rate pushing the Relative Strength Index (RSI) into oversold territory for the first time since March 2020.

In turn, the 50-Day SMA (0.7517) has developed a negative slope in the second half of 2021, with the downward trend in the moving average casting a bearish outlook for AUD/USD as it trades to a fresh yearly low (0.7289) in July.

With that said, lack of momentum to climb back above the Fibonacci overlap around 0.7440 (23.6% expansion) to 0.7500 (50% retracement) has pushed AUD/USD below the 0.7370 (38.2% expansion) to 0.7380 (61.8% retracement) region, and failure to defend the July low (0.7289) may open up the 0.7180 (61.8% retracement) to 0.7210 (78.6% retracement) as there appears to be a shift in the broader trend.

— Written by David Song, Currency Strategist

Follow me on Twitter at @DavidJSong