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AUDUSD Breaks .8700 as Risk is Off the Table

by on January 24, 2014 5:43 am GMT
 

The Australian dollar fell below .8700 per dollar as market participants take risk of the table as analysts compounding the recent Chinese data see future slowdown. China is Australia’s largest trading partner, and many analysts see a Chinese slowdown could negatively impact Australia’s economy. “The Aussie is very sensitive to perceptions of risk,” said Joseph Capurso, a strategist at Commonwealth Bank of Australia.

Australia’s economy depends on its rich commodity resources, but the downward shift in China’s credit growth and structural reforms could pose a threat to the already weakened Aussie economy. Capurso notes that the Australian dollar is the way to short emerging-market shortfalls due to its commodity-currency attributes and liquidity.

The AUDUSD break through .8700 briefly before popping back up, but the momentum is strong and could look for more downside. The daily chart shows price action rejected by the 50 EMA near .9062, and it quickly began to fall last week and eventually gaping downward through support, turned resistance, at .8835. This level is likely to withstand any pullbacks, while near-term resistance is located at .8750.

.8570 looks like the next stop for Aussie’s train ride down under. The pair is heading towards oversold territory, but momentum looks strong. The ADX is at 24, and the -DMI is continuing to tick upwards. The RSI is currently 32.

1D Chart of AUDUSD

1D Chart of AUDUSD

The weekly chart shows that there is little support between current levels and .8570. There is minor price action support at .8660/65, but the trend has been down since last April, and it is likely to continue. The weekly chart is heading to oversold territory, as well. However, the ADX is actually sloping more sharply then the daily. A catalyst could give the AUDUSD a pullback, but that is yet to be seen.

Wk Chart of AUDUSD

Wk Chart of AUDUSD