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AUD/USD selloff pushes RSI into oversold territory

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Australian dollar Topics for conversation

AUD/USD clears the June 2020 low (0.6648) as it trades to a new yearly low (0.6438) and the exchange rate may try to test the May 2020 low (0.6373) as the Relative Strength Index (RSI) pushes to oversold territory.

AUD/USD The selloff pushes the RSI into oversold territory

AUD/USD is extending a streak of lower highs and lows from last week to largely reflect weakness in commodity bloc currencies, and an RSI move below 30 is likely to be accompanied by further declines in the exchange rate as seen in price action. earlier this year.

As a result, the Australian retail sales report update may have little impact on AUD/USD as household spending is expected to increase 0.4% in August after a 1.3% increase the month before, while a slowdown in private sector consumption could impact on the Reserve Bank of Australia (RBA) as the central bank warns that “household spending behavior remains an important source of uncertainty”.

In turn, the RBA may adjust its approach to monetary policy normalization as the central bank plans to keep the “economy on an even keel” and it remains to be seen when the governor Philip Lowe and Co. plans a smaller rate hike at its next meeting on Oct. 4 as “members saw the slower pace of rate hikes becoming stronger as the cash rate rose.”

Until then, AUD/USD may continue to depreciate as long as the RSI remains below 30, and a further drop in the exchange rate could contribute to a bullish retail sentiment, as it has seen earlier this year.

The IG Customer Sentiment Report shows that 78.27% of traders are currently net long AUD/USD, with a long to short ratio of 3.60 to 1.

The number of net-long traders is 3.52% higher than yesterday and 7.14% lower than last week, while the number of net-short traders is 19.28% higher than yesterday and 9, 22% lower than last week. The decline in interest in the net long position did little to ease the overcrowding, as 73.85% of traders were net long AUD/USD last week, while the fall in net short positions comes as the exchange rate trades to a fresh annual low ( 0. 6438).

That being said, the oversold indicator in the RSI is likely to be accompanied by further declines in AUD/USD as the price action was earlier this year and the exchange rate may try to test the May 2020 low (0.6373) as the series of lower highs extends and lows since last week.

AUD/USD daily chart

Source: Trade view

  • AUD/USD tops June 2020 low (0.6648) to sink to new 1-year low (0.6438), with exchange rate weakness pushing Relative Strength Index (RSI) to oversold territory.
  • AUD/USD could continue to break out a series of lower highs and lows as long as the RSI holds below 30, with a close below the Fibonacci retracement of around 0.6460 (61.8% retracement) to 0.6530 (61.8% extension), increasing opportunities for verification. area of ​​0.6370 (78.6% extension), which coincides with the May 2020 low (0.6373).
  • The next area of ​​interest is around 0.6290 (161.8% extension), but lack of momentum to close below the overlap around 0.6460 (61.8% retracement) to 0.6520 (38.2% extension) could hold back a bearish price move in AUD/USD, with a move above 30 in the RSI, is likely to lead to a quick bounce in the exchange rate.
  • Failure to extend a series of lower highs and lows could push AUD/USD back to 0.6650 (50% extension), with the next area of ​​interest around 0.6760 (50% retracement) to 0.6770 (100% extension ).

— Posted by David Song, Currency Strategist

Follow me on Twitter at @DavidJSong

https://www.dailyfx.com/news/aud-usd-selloff-pushes-rsi-into-oversold-territory-20220926.html

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