Channel Breakout to Keep Bulls in Control?

AUD/USD PRICE, CHARTS AND ANALYSIS:

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AUSTRALIAN DOLLAR FUNDAMENTAL BACKDROP

The Australian Dollar has held onto its gains from the past couple of weeks despite a slight recovery from the US Dollar index at the back end of last week. The Australian Dollar has been on a steady move higher since the RBA raised rates at the November meeting.

The Australian Dollar has since been on an uptrend as this coincided with the US Dollar weakness and the Federal Reserve Meeting last week. The Australian economy has been showing signs of a slowdown with both services and composite metrics in contractionary territory.

If this is the peak rate for the RBA it still puts the Australian Dollar in the driving seat given the comments by Fed Chair Powell. The Fed are expecting 75bps of cuts in 2024 while the RBA are yet to strike such a dovish tone. The RBA could remain hawkish for a bit longer before we see some dovish repricing which could halt the Australian Dollar rally.

It will be an interesting end to the year and even more interesting in 2024 as we see how Central Banks navigate their way toward potential rate cuts.

THE WEEK AHEAD

The rest of the week still brings in a lot of data releases from the US in particular. These releases could see small alterations in the Fed Funds rate expectations for the Federal Reserve. This is likely to persist heading into 2024 as data continues to be released.

Right now, however, any data releases are unlikely to have any lasting impact and is likely to only result in short term changes. Earlier this evening we also heard comments from Fed Policymaker Mary Daly who confirmed that 3 rate cuts would likely be needed to avoid overtightening. Daly also said that this would likely depend on inflation, another sign that it is not a given. The recent rise in tensions in the Middle East has the potential to prop inflation up once more and lead to a global economic slowdown as well. Interesting times ahead indeed.

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PRICE ACTION AND POTENTIAL SETUPS

AUDUSD

AUDUSD had finally broke out of the channel which had been in play since March 2023. The breakout occurred last week Thursday and since AUDUSD has stalled. Looking at general structure we have just printed a fresh higher high which usually occurs before a pullback. The Dollars resurgence on Friday failed to push AUDUSD lower and thus i am skeptical that the retracement i am looking for will come to fruition.

If it does however, i will be paying close attention to the ascending trendline which could come into play, but before that there is support at the 0.6690 and 0.6590 handle which could prove to be stubborn.

Alternatively, should AUDUSD continue its move higher from here then immediate resistance rests at 0.6790 and 0.6890 respectively.

Key Levels to Keep an Eye On:

Support levels:

Resistance levels:

• 0.6790
• 0.6890
• 0.7000 (psychological level)

AUD/USD Daily Chart

Source: TradingView, prepared by Zain Vawda

IG CLIENT SENTIMENT

IG Client Sentiment data tells us that 51% of Traders are currently holding SHORT positions. Given the contrarian view to client sentiment adopted here at DailyFX, does this backup my assumption that a retracement may be incoming?

For tips and tricks regarding the use of client sentiment data, download the free guide below.

— Written by Zain Vawda for DailyFX.com

Contact and follow Zain on Twitter: @zvawda