The AUD/USD currency pair has been oscillating inside a sharply inclined bearish channel over the last five months and looks set to maintain this course at least for the next couple of months.
On Tuesday, the bears retained control despite a momentary climb as the pair later fell to trade just below the 0.7400 level. Nonetheless, many would have expected the pair to fall even further given the strengthening greenback, which benefited from a resurgence in stock prices.
But the overall downward momentum is seen as a move by traders to completely ignore the ballooning negative sentiment regarding the U.S. versus China trade wars. The latter has recently teamed up with the European Union member countries to try to tame Donald Trump’s pragmatic stance on trade relations.
Therefore, the USD remains relatively stronger than most of its peers in the currency markets despite the current international trade turmoil. On the other hand, the Aussie remains relatively quiet as there are no major economic for this Wednesday.
Nonetheless, this does not mean that traders will be equally mute on the AUD/USD trading matters. In fact, there are potential profit opportunities that both the bulls and the bears could target for this week. The 4-hourly chart below has some clear insights on what traders could look at.
The AUD/USD currency pair has recently dropped to trade below the notable consolidation zone between 0.7500 and 0.7600.
The pair now seems to be forming another consolidation zone of about 100 pips which lies within 0.7350 and 0.7450 levels. These give both the bulls and the bears potential trading targets for the current week as denoted by the support and resistance levels in the 4-hourly chart above. So, based on the current AUD/USD rate of about 0.7375, traders here could be looking to make profits of about 25 pips either direction.
And should the pair’s sharp downward movement continue as predicted, then a retest of the downward trending baseline for the bearish channel could be tested next week, which would take the exchange rate for the pair to about 0.7250.
However, better profits could be netted by traders looking for intermediate to long-term trading opportunities as demonstrated on the daily chart below.
The pair is tipped to touch 0.7250 at some point next week and this provides an insight into where intermediate bearish traders could look to target as a profit taking opportunity. The 0.7300 level denoted by (S1) on the daily chart above is also a potential target should the pair fail to breach the key support zone.
But if traders continue to ignore US trade wars and focus on the strong economic data that the country’s leading economic bodies are widely expected to report next month, then this could provide the AUD/USD with the downward momentum required to take it further south towards 0.7150 level as denoted by (S2). This is a long-term trading opportunity for the bears and as shown on the daily chart above, it has not been tested since the start of 2017.
The bulls are not short of opportunities too. Even as traders continue to ignore concerns over US trade wars, some experts have warned that probably president Trump is the only person that would be surprised if these trade wars caused a major economic collapse. By saying this, economists are basically inferring to the fact that the effects of the ongoing trade wars could be far much worse.
If that happens to be the case, then things could get interesting for the greenback. A strain on economic growth could significantly weaken the USD thereby giving other currencies an opportunity to rally against it.
This could push the AUD/USD upwards thereby helping the bulls realize profits on intermediate and long-term trades. In this case, bullish traders will be aiming at profit opportunities around (R1) and (R2) (0.7700 and 0.8000) as shown in the daily chart above. But again, these opportunities are unlikely to mature unless there is a major change in market sentiment towards the AUD/USD currency pair.
In addition, the trade wars between the U.S, China and the EU could also affect the AUD since the Australian economy does rely significantly on the two regions, especially China. So, if the trade wars negatively affect China’s economy, then the chances are that the Aussie could suffer the same fate.