Photo - Andreas Zanin
Andreas Zanin
Analysis | May 27, 2021

Outlook and forecast: AUD/USD

AUD/USD has been trading sideways and volatility has been low its failed to move higher despite the market consensus being bullish. We think the AUD has limited upside and will shortly confirm a major trend reversal to the downside. We view short AUD/USD as potentially a good long term trend following trade, our view of the fundamentals, sentiment and technicals below.

In terms of the AUD  the market remains very bullish and here is the consensus view:  “Strong domestic fundamentals and a relatively supportive global backdrop should support the AUD. Australia’s current account position has continued to improve, and the surplus has moved even higher in recent quarters. Much of this strength could be attributed to increasing commodities prices. As the global recovery gathers further steam, demand for commodities is likely to remain firm, supporting Australia’s terms of trade and current account balance.” (HSBC)

Commodities have been firm but speculators hold their biggest long position ever so a correction is likely which will weigh on the Aussie.  In terms of the most important commodity to watch which accounts for  about 45% of Australia’s export revenue its Iron Ore – its now started to move lower and we expect it to continue to correct to the downside.

Have Iron Ore prices peaked? China has moved to curb speculative activity which has been responsible for much of the rise. Over the longer term that China wants to cut its reliance on iron ore imports. China’s record steel output in April was fuelled by record scrap use. Iron ore demand has probably peaked and looks set for a a major decline. In terms of scrap – A 1% increase in China’s scrap share eliminates 18Mtpa of iron ore demand – comparable to the capacity of a medium-sized iron ore mine chart below…

The market is generally bullish of the AUD but its not moved higher in recent weeks on bullish news and this warns of a fall weekly and daily charts below with key levels of support and resistance.

On the weekly chart, we have seen volatility drop in recent weeks and the outer Bollinger bands have contracted – the low volatility warns of a big move which we think will be to the downside. A clear break of 0.7700 would set off correction down to major support at 0.7700   in our view.

On the daily chart in terms of placing a stop – if we do break 0.7700 and close below the level the stop in our view, should initially behind second level resistance on the chart below and then trailed down if price weakens.

 

Research provided by LearnCurrencyTradingOnline.com

The given data provided contains additional information, forecasts, analysis and market reviews published on the Key to Markets website.

Before making any investment decisions, you should know that:

– Key to Markets publishes analysis of any kind solely for information purposes and such analysis should not be construed as investment advice or a solicitation to buy or sell any financial instruments including without limitation CFDs.

– Key to Markets will not be liable for any loss or damage, which may arise, directly or indirectly from use of or reliance on the data provided by Key to Markets.

– Whilst all reasonable efforts are made to ensure that all content sources are reliable and that all information is presented, as far as possible, in a comprehensible, timely, accurate and complete manner, Key to Markets does not guarantee the accuracy or completeness of any information contained in the analysis.

– Past performance is not a guarantee of future results.

Latest Article
Improve your trading with a True ECN Broker
Trading account overview