Technical Forecast for the Australian Dollar: Neutral
- Rebounding risk appetite may help alleviate some pressure on the Australian Dollar, but fundamental conditions remain difficult as industrial base metals continue to struggle around news out of China.
- Positioning in the futures market is extreme, at its most net-short levels ever recorded.
- The IG Client Sentiment Index suggests that the major AUD-crosses have bearish biases.
Australian Dollar Rates Week in Review
Bubbling property section concerns in China have spilled over to global metals markets for several weeks now, leading to an otherwise difficult trading environment for commodity-linked Australian Dollar. But with Evergrande fears subsiding and industrial base metals like iron ore finding a modicum of reprieve, so too did the Aussie last week. While volatility was high, absolute price movements were well-contained by the end of last week. AUD/USD only fell by -0.09%, while EUR/AUD was unchanged. AUD/JPY posted a modest gain of +0.59%, while AUD/NZD added +0.31%.
AUD/USD RATE TECHNICAL ANALYSIS: DAILY CHART (March 2020 to September 2021) (CHART 1)
AUD/USD rates may be showing signs of basing after declining on a near-linear path for most of September. The pair is intertwined among its daily 5-, 8-, 13-, and 21-EMA envelope, which is coming out of bearish sequential order. Daily MACD’s descent below its signal line is abating, while daily Slow Stochastics are beginning to climb out of oversold territory. Resting in the middle of the range carved out since early-July between the 61.8% and 76.4% Fibonacci retracements of the 2020 high/low range between 0.7121 and 0.7502, confidence in a more significant rally may not emerge until the daily 50-SMA is achieved.
IG Client Sentiment Index: AUD/USD RATE Forecast (September 24, 2021) (Chart 2)
AUD/USD: Retail trader data shows 61.67% of traders are net-long with the ratio of traders long to short at 1.61 to 1. The number of traders net-long is 6.95% higher than yesterday and 7.04% higher from last week, while the number of traders net-short is 15.24% lower than yesterday and 12.27% lower from last week.
We typically take a contrarian view to crowd sentiment, and the fact traders are net-long suggests AUD/USD prices may continue to fall.
Traders are further net-long than yesterday and last week, and the combination of current sentiment and recent changes gives us a stronger AUD/USD-bearish contrarian trading bias.
AUD/JPY RATE TECHNICAL ANALYSIS: DAILY CHART (March 2020 to September 2021) (CHART 3)
AUD/JPY rates posted a sharp rebound last week, bouncing from the region between a cluster of Fibonacci retracements that have proved as dynamic support and resistance dating back over the past year. The pair is churning above its daily EMA envelope, but perhaps more importantly, it’s beginning to climb through its daily 50-SMA. Daily MACD is turning higher but remains below its signal line, while daily Slow Stochastics are rising but still below their median line. Traders may want to watch lower timeframes (e.g. 4-hour, 6-hour) for more technical evidence of continuation of the bottoming effort early in the week ahead.
IG Client Sentiment Index: AUD/JPY Rate Forecast (September 24, 2021) (Chart 4)
AUD/JPY: Retail trader data shows 52.74% of traders are net-long with the ratio of traders long to short at 1.12 to 1. The number of traders net-long is 10.99% higher than yesterday and 5.21% higher from last week, while the number of traders net-short is 12.98% lower than yesterday and 12.56% lower from last week.
We typically take a contrarian view to crowd sentiment, and the fact traders are net-long suggests AUD/JPY prices may continue to fall.
Traders are further net-long than yesterday and last week, and the combination of current sentiment and recent changes gives us a stronger AUD/JPY-bearish contrarian trading bias.
CFTC COT Australian Dollar Futures Positioning (September 2020 to September 2021) (Chart 5)
Finally, a look at positioning in the futures market. According to the CFTC’s COT for the week ended September 21, speculators increased their net-short Australian Dollar positioning to 87,163 contracts, up from the 82,746 net-short contracts held in the week prior. Net-short positioning has increased for 12 consecutive weeks, and is now the largest net-short position in history.
— Written by Christopher Vecchio, CFA, Senior Strategist