AUD/USD: Back Within 0.892 – 0.897 Consolidation

Hourly Chart
AUD/USD Hourly" title="AUD/USD Hourly" height="614" width="979">

Despite the strong bearishness seen in AUD/USD in 2013, bulls have actually fared much better compared to other major pairs counterpart such as EUR/USD and GBP/USD. Prices have retraced a much larger portion of post tapering decline compared to the rest, with today's rally even managing to push above the highs that occurred after the wild swings post FOMC announcement. Prices have since traded lower towards 0.892, but even then we are above the pre FOMC announcement highs, underlining the strong bullish bias that is currently in play. Not only that, it seems that bears may not be able to push much more beyond 0.892, with additional support coming in the form of rising Channel Top, making a push towards 0.897 a possibility.

However, it's not all rosy for the bulls. Stochastic readings actually favor further bearish pullback with a fresh bearish cycle signal being formed in the past couple of hours. Then again, Stochastic curve may likely rebound from various "support levels" between 40.0 - 60.0, which is in line with prices finding support from Channel Top right now or from consolidation between 0.889 - 0.892 seen on Wednesday before FOMC announcement should Channel Top is breached. Hence, overall bullish outlook remain intact, and declines in the near term should be shallow.

Weekly Chart
AUD/USD Weekly" title="AUD/USD Weekly" height="614" width="979">
The strong bullish response seen in the short-term perhaps is a reflection of the long-term bullish pullback. Prices managed to carve out a new 2013 low last week, but 0.89 support remain strong. Together with Stochastic which reflects Oversold momentum, a long-term pullback to 0.93 or at the very least tagging the descending trendline should not be ruled out.

That being said, long term fundamentals remain bearish for AUD/USD. Unlike it's neighboring counterpart NZD/USD, AUD does not have rate hikes expectations to buffer against the incoming USD strength. On the contrary, Central Bank RBA may need to cut rates down even more in order to keep the economy afloat given that the country will be undergoing a mild form of austerity in 2014 even as mining sector stalls. To put it simply, economic growth in Australia is not looking good, and that in itself would already be pulling Aussie lower without the threat of lower interest rates - a proven recipe that will chase carry traders and hot money flow away from Australia and bring AUD even lower. Hence, overall long-term bearish outlook remains, and traders should not expect current pullback to change sentiment.

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