AUDUSD: Bulls vs. Bears

We've trotted out a number of potentially bearish setups for AUDUSD of late. Some time back we had a look at the weekly stochastics setup - looking for a follow through lower, but what appeared to be a promising setup has still failed to follow through. In fact, the weekly momvntum as measured by the 10-week stochastics has been at high levels for the most sustained period of time in the more than 20-years of AUDUSD data we looked at. This is a truly remarkable, essentially "correctionless" run for the pair.

Tactically, we did see a deep sell-off last week after we identified a divergent momentum top last Tuesday in our FX Update, but the correction was not as "satisfying" as we would have preferred given the nice setup in divergent momentum and the inability of the recent new highs above the old 0.9330 mark to hold.

Still, the structural bearish view is still in place here despite the furious rally off of Friday's low, which was itself a teasing false break of the well established trendline. So far, today's high coincides with the 0.618 Fibo, a very interesting Fibo level at turnarounds (note on an hourly chart that the initial sequence off the 0.9407 top saw a 0.618 Fibo retracement from the 0.9237 tactical low last Tuesday). If this fails to hold, bears would have to retreat to the 0.764 Fibo a bit higher., and beyond that look for a double-top scenario.

As we pointed out in this morning's note - if the risk rally remains more or less on, or at least if risk corrections aren't especially deep, then the USD would still appear vulnerable - so any further sell- off in AUDUSD will likely require a retreat in risk appetite as well - not something that is particularly in evidence just yet. On the interest rate side of things, there is nothing to suggest AUDUSD should be moving much in either direction. First downside level of interest in the shortest term would be the failure of the 0.9205 weekly pivot to hold. Stay tuned...