AUD/USD: 0.90 Holding Up, Next Level Of Support Eyed

AUD/USD went down lower this morning following a weaker than expected Construction Work numbers which was released today. Q/Q Construction Index fell 0.3% versus expectations of a 1.1% growth, signalling that Australia’s economy is getting worse.

Or not.

This -0.3% print is not the worse that we’ve seen in recent quarters. Q1 2013 shrank 2.0% Q/Q, while Q4 2012 similarly shrank 0.1%. In terms of expectations, Construction Work has been below expectations since Q2 2012, and hence having a -0.3% this time round actually showed that the decline is decreasing which is a good thing. Perhaps this is why the resulting decline wasn’t really spectacular, with price falling less than 10 pips immediately, and pulling back shortly thereafter. In fact, the huge loss in AUD/USD during Asian hours today is actually not coinciding with the Construction Index release time, but 2 hours prior, pre-Tokyo Open.

Was there any reasons for the decline? Prima facie there doesn’t seem to be any at least from the Fundamnetals side.

Hourly Chart
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From the technical side of things, we can see that price was actually declining yesterday, hitting a low 0f 0.894 during early European hours following the strengthening of USD due to Syrian unrest. AUD/USD actually rebounded slightly towards 0.90 during US session as weaker than expected housing data sent USD weaker again. For the case of AUD/USD, it is likely that technical swing traders made use of the news to buy AUD/USD with 0.90 target in mind after tagging the 0.894 support. The fact that AUD/USD started turning around before 0.90 was significantly tested is a sign that sentiment remains heavily on the bears side. Prices subsequently pushed lower towards the final 1-2 hours of US session, with price breaking the soft resistance turned support around 0.8985. This is an extremely bearish setup, and explains why prices dipped sharply lower when Asian traders starting working. Nonetheless, 0.894 remains supported, and we are currently on a rebound leg with prices trading around 0.896. That doesn’t mean that the short-term bearishness has already been invalidated, as long as we are below 0.90, the possibility of price breaking 0.894 remains open.

Daily Chart
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Daily Chart shows the importance of a 0.90 break. By trading below the round figure, prices will be able to seek out the 2013 swing low of ~0.885. Stochastic readings also agree with this outlook as readings are still pointing lower in the midst of a bearish cycle. However, readings are also dangerously close to being Oversold, and hence impairs the chances of price breaking 0.885 for a bearish extension.

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