The US dollar is having a very strong week against the Australian dollar. Five consecutive bearish daily candles and a breakdown of the key psychological .80 handle after tonight’s HSBC China Manufacturing report shows that the manufacturing slowdown is still ongoing. The January reading came in at 49.8, slightly higher than the prior month’s reading of 49.6, but the labor market declined and domestic demand is still falling.
Price action on the AUD/USD weekly chart displays that the recent consolidation that began in the middle of December appears to be over and price is poised for fresh multi-year lows. Immediate downward targets include .7868, which is the 161.8% Fibonacci retracement of the rebound that occurred over the past two weeks. Deeper support will come from the 200-month SMA at .7789.
Longer-term weakness may target the .7500 area if expectations grow for a rate cut by the Reserve Bank of Australia. A daily close above the .8300 handle and 50-day SMA may invalidate the current bearish trend.
The trade: Sell AUD/USD at .7990 with a stop loss at .8090 and a take profit at .7790. The Risk/Reward Ratio is 1:2
Edward J. Moya
WorldWideMarkets Online Trading