As we roll into the middle of the week, the market’s risk-on/risk-off switch is definitively stuck in the “off” position. US equities are trading sharply lower, with the Dow Jones Industrial Average on track to close below its 50-day MA for the first time in over a month, while US treasury yields are ticking back down to 2.51%. In the forex markets, safe havens like the US dollar and Japanese yen catching a bid, while higher-yielding currencies including the Australian and New Zealand Dollars are selling off.
Focusing in on the AUD/USD, the RBA released the minutes from its meeting earlier this month, reiterating its plans to keep interest rates unchanged for the foreseeable future. At the same time, iron ore has dropped to a new 5-year low under the psychologically significant $100/ton level, as my colleague Chris Tedder noted earlier today. Traders have been spooked by the collapse in Australia’s largest export, driving the AUD/USD down to a multi-week low.
More importantly, the AUD/USD has now broken key technical support from its 4-month bullish trend line off the January lows. A breakdown from an uptrend does not necessarily indicate an immediate shift to a downtrend, but it does portend a period of consolidation at minimum. Some of the other technical evidence is outright bearish; for instance, rates are currently showing a Bearish Marubozu Candle (see you below) on the daily chart, suggesting that the pair may see continued selling pressure over the next few days. The secondary indicators also favor lower prices in the short term.
The RSI is near 40, its lowest level since the January lows, while the MACD turned lower and is currently approaching the key “0” level.
In the short-term, a continuation lower appears likely. To the downside, the next levels of support will be the 2-month low near the .9200 round handle, followed by the convergence of the 200-day moving average and 38.2% Fibonacci retracement at .9155/60.
Meanwhile, selling pressure is likely to emerge if rates bounce to retest previous-support-turned-resistance at 0.9300; a sustained break back above that level would call the near-term bearish bias into question.
A Marubozu candle is formed when prices open very near to one extreme of the candle and close very near the other extreme. Marubozu candles represent strong momentum in a given direction.