AUD/USD: New 2013 Lows On QE Taper, China

AUD/USD technical bears would be loving every single moment right now. Price was already in a bear trend as seen from this week’s get-go: Consecutive lower highs from June 14th, affirmation of bearish sentiment from the holding of 0.956 support turned resistance, trading lower despite weakening USD. All these pointed to an extreme underlying bearish sentiment for AUD. Bulls only had their first legitimate scare yesterday, where 0.945/0.946 support held, with the resulting rebound pushing above 0.95 during early US hours. However that could be easily explained away with an extreme case of USD weakening due to more speculative selling of USD thinking that trusty-o Ben Bernanke will deliver his usual dovish speech, using words such as “too early to talk about exit”, “growth still not stable”, “downside risks if QE stopped” etc.

That did not happen unfortunately for the bulls. And traders who thought they were being clever by front-running Ben Bernanke’s expected speech got burned hard when Ben Bernanke issued a potential timeline when QE3 purchases may slowdown and stop eventually, sending stocks trading sharply lower and USD pulling higher. AUD/USD got hit heavily, breaking the 0.945/96 support and headed directly to the 0.933 YTD lows. Price did find some support over there, but the combination of USD strength and AUD weakness was too much to bear, with the aforementioned level broken within the next hour.

Bulls of AUD/USD would certainly know the idiom “When it rains, it pours” well by now, for bears are not done. New Zealand’s GDP numbers which came in 4 hours later was lower than expected, driving NZD lower and pulled AUD along with it. Prices recovered after tagging 0.925 and rose back to 0.93 during early Asian hour, only to have Chinese HSBC PMI Manufacturing Data coming in weaker than expected as well, driving AUD/USD lower once again. It almost seems as it the universe is conspiring to undermine any corrective efforts bulls can muster currently.

Hourly Chart
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Not that the bears are complaining. Bernanke’s speech came at the best time possible, with the decline confirming the overall bearish sentiment with the holding of 0.956 (not that we really need this confirmation right now, given that price is at fresh 2013 lows). Stochastic readings are in deep Oversold regions but that does not necessary mean a rebound is in order. In fact, price did attempt to rebound (failed bullish push of 0.930) which is also seen from a Stoch reading rebound. The failure to sustain the rebound is forming a meek “peak” within the Oversold region, and suggest that current cycle remain bearish.

Weekly Chart
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From the Weekly Chart perspective, if we close below 0.938 and preferably 0.933, the likelihood of breakout increases tremendously. A confirmation of a failed bullish correction may result in further acceleration lower towards 0.81 and potentially below. However, before that happens, we cannot rule out the possibility of a “fakeout” which may bring us back within the 0.938 – 0.97 support/resistance zone.

Fundamentally, nothing has change much other than a case for a stronger USD moving forward. We all know about China woes, and Australia’s own economic structural challenges. The only difference currently is the loss of USD weakness which was the last possible resort for bulls to hold onto. With that gone, the outlook for AUD/USD becomes very bleak, and the technical breakout will simply be salt on the wound to drive price deeper.

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