Technical Analysis

AUD/USD: It’s getting a bit crowded at the short end

AUD/USD extends gains to session high of 0.7147


The aussie is continuing to gain against the dollar on the day after breaking back above the 100-hour MA (red line). Near-term bias now turns more bullish once again as buyers will be looking to break above some swing region resistance around 0.7150 next.

The gains today for the aussie came on the back of the lower headline unemployment rate, which fell to 5.0% from 5.3% previously. There was a dip in the participation rate (which tends to contribute to moves in the unemployment rate) and the trend unemployment rate held steady but still the aussie remains bid.

That points to something else in the works and the simplest explanation tends to be the best one in trading. For the aussie, it’s just getting too crowded for shorts at the moment and given that, unwinding of positions can happen swiftly and more so when there’s a reason for it.

The last two times aussie shorts were this crowded, it resulted in a sharp unwinding of positions and that means things are setting up for a potential move higher in the aussie one way or another. As Adam tends to point out, markets love to move in ways that causes the most pain to the most people and right now it is screaming for a retracement in the aussie.

It may not come today or tomorrow, but despite the fundamentals pointing for a move lower, you can’t argue with positioning data – more so when technical indicators are also supportive.

Although the bigger picture doesn’t suggest any bullish tones in the aussie just yet, seeing how the aussie has crumbled this year and how the 0.7000 level is yet to be tested despite the bearish momentum, we may very well see a pause in the bearish momentum for the time being.

It would require a move above 0.7315 for the bearish pattern to break, but pay attention to the near-term charts as well. As long as near-term bias doesn’t return to bearish territory, the squeeze is very much on right now.

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