AUD/USD Trend Changing?

I’m still reeling from my EUR/AUD loss so I just decided to take it easy this week and stick with a simpler forex setup.

As Forex Gump mentioned earlier this week, it appears that sentiment is shifting for the Australian dollar, as the cautious RBA minutes and the prospect of government budget cuts led to a sharp AUD selloff. With that, AUD/USD made a strong break below the rising trend line on the 4-hour time frame:

AUD/USD 4-hour Forex Chart

AUD/USD 4-hour Forex Chart

Do you think it counts as a valid breakdown though? Earlier today, the Chinese economy showed signs of a rebound when the HSBC flash manufacturing PMI jumped to its highest level in five months. Although the index fell short of indicating industry expansion, Aussie bulls charged quickly when this news spelled better prospects for Australia’s commodity exports.

With that, AUD/USD is coming close to testing the broken trend line support, which might now act as resistance. I’m considering shorting on a pullback to the .9300 area but I’m still trying to understand which among the recent fundamental events are just short-term noise and which ones could shape the longer-term trend.

Care to share your thoughts?

Happy time

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  • chrisb2014

    Living in Australia I think there is slowly becoming a decoupling of the Chinese/Oz economy.

    I view the current pick up in the Chinese PMI with scepticism and if totally correct I see it as China exporting their deflation.

    Australia’s economy has greater forward risks, a drop in steel prices (although they may pick up in the middle of the year before finding there way lower at the end of the year), a tightening of the Budget and over the next twelve months a number of major LNG plants come to completion which will put downward pressure on consumption and assets, in turn putting upward pressure on unemployment.

    The first of these major constructions is completed over the next six months.

    Currently the chance of an interest rate cut later this year is creeping up, having said that it looks like the AUDUSD is a little over sold on the daily.

    • Happy Pip

      Yipes! Thanks for sharing those insights, really interesting indeed. It does appear like risks are building up for the Australian economy. Are you already short AUD?

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