AUD/USD falls below 100-day MA, now threatens to move below 100-hour MA
All good things must come to an end. The aussie has posted a solid run over the past two weeks and moved up by almost 300 pips against the dollar during that course. Call it short covering (which I attribute the move to), call it dollar weakness, call it fair value adjusting. But things are what they are and the technical picture doesn’t lie.
When AUD/USD broke higher on 1 November, price took out the trendline resistance for the year and the bullish momentum started to extend its way towards the 100-day MA (red line). We got there but the key test of the September high at 0.7315 is proving to be a step too far for buyers as it would seem.
The fundamentals in place that has driven the pair lower for the year are still in place and we got a reminder yesterday from the Fed.
I shared the divergence above in yesterday’s session wrap as well and it’s something that tells you where the medium-term outlook for the AUD/USD lies. Sure, we may see correction on short covering and stretched positioning but those things won’t last as long as the main driver of direction is still headed in the same direction.
For now, one can still argue that stretched short positions are still being flushed out as there hasn’t been any key break to the downside. But this is where watching levels like the 100-hour MA is important. That signifies the near-term bullish bias in the pair and once that gives way — along with the 23.6 retracement level @ 0.7236 — I would expect a sharp move back to the downside as the rate divergence shows that AUD/USD has plenty of catching up to do.