Australian Dollar Outlook:
- AUD/JPY rates are testing the ascending trendline from the March 2020 and August 2021 lows.
- After pulling back from a confluence of resistance, AUD/USD rates are winding up for another breakout attempt.
- According to theIG Client Sentiment Index, both AUD/JPY and AUD/USD rates have bearish biases in the near-term.
Aussie Benefits from Commodity Surge
Volatile swings in risk assets over the past few weeks have hardly impacting the Australian Dollar. The wrath that the Russian invasion of Ukraine has unleashed on global financial markets has spilled into higher commodity prices, and as a significant exporter of both base metals and energy products, the Australian Dollar has been able to weather the storm. Now that risk assets are rebounding – US equity markets are up over +3% on the day – the Australian Dollar may find itself with risk appetite tailwinds at its back.
Read more: Central Bank Watch: BOC, RBA, & RBNZ Interest Rate Expectations Update
AUD/USD RATE TECHNICAL ANALYSIS: DAILY CHART (March 2021 to March 2022) (CHART 1)
In late-February, AUD/USD rates broke out of a bullish falling wedge that had been forming since the end of October 2021. But the pair remains within the parameters of two multi-month technical patterns: the descending parallel channel in place since the end of June 2021; and the breakdown below the rising trendline from the March 2020 and August 2021 lows. The pullback earlier this week coincided with AUD/USD rates running into resistance in both of these patterns.
The technical structure remains bullish and suggests that another run higher to the monthly high is around the corner. AUD/USD rates are above their daily 5-, 8-, 13-, and 21-EMA envelope, which is in bullish sequential order. Daily MACD is still trending higher while above its signal line, while daily Slow Stochastics have pulled back from overbought territory, but remain above their median line. Gains above 0.7400 are eyed over the coming days.
IG Client Sentiment Index: AUD/USD RATE Forecast (March 9, 2022) (Chart 2)
AUD/USD: Retail trader data shows 49.85% of traders are net-long with the ratio of traders short to long at 1.01 to 1. The number of traders net-long is 12.99% higher than yesterday and 26.58% higher from last week, while the number of traders net-short is 12.28% higher than yesterday and 18.87% lower from last week.
We typically take a contrarian view to crowd sentiment, and the fact traders are net-short suggests AUD/USD prices may continue to rise.
Yet traders are less net-short than yesterday and compared with last week. Recent changes in sentiment warn that the current AUD/USD price trend may soon reverse lower despite the fact traders remain net-short.
AUD/JPY RATE TECHNICAL ANALYSIS: DAILY CHART (December 2020 to March 2022) (CHART 3)
At the end of February it was noted that “bullish momentum may carry the pair to the yearly high just below 84.00, before continuing towards the ascending trendline from the March 2020 and August 2021 lows closer to 85.00.” AUD/JPY rates have sustained their push above symmetrical triangle resistance from the October 2021 and January 2022 swing high, and are flirting with a break above the ascending trendline from the March 2020 and August 2021 lows near 85.00.
Bullish momentum remains firm, with the pair above its daily 5-, 8-, 13-, and 21-EMA envelope, which is in full bullish sequential order. Daily MACD is trending higher while above its signal line, and daily Slow Stochastics are holding just below overbought territory. A break above 85.00 on a closing basis would increase the likelihood of a quick jaunt to the 2021 high at 86.25.
IG Client Sentiment Index: AUD/JPY Rate Forecast (March 9, 2022) (Chart 4)
AUD/JPY: Retail trader data shows 30.75% of traders are net-long with the ratio of traders short to long at 2.25 to 1. The number of traders net-long is 37.62% higher than yesterday and 24.11% higher from last week, while the number of traders net-short is 1.29% higher than yesterday and 4.33% higher from last week.
We typically take a contrarian view to crowd sentiment, and the fact traders are net-short suggests AUD/JPY prices may continue to rise.
Yet traders are less net-short than yesterday and compared with last week. Recent changes in sentiment warn that the current AUD/JPY price trend may soon reverse lower despite the fact traders remain net-short.
— Written by Christopher Vecchio, CFA, Senior Strategist
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