Market update: Australian dollar soars as traders turn bearish

[MongiIG]

Australian dollar gains most since end of July and retail traders started unwinding bullish bets.

 

Source: Bloomberg

 

Australian dollar AUD/USD Forex Shares Market sentiment United States dollar

Daniel Dubrovsky | Currency Analyst, DailyFX, San Francisco | Publication date: Thursday 24 August 2023

AUD/USD sentiment outlook: bullish

In response to the Australian dollar soaring against the US dollar, retail traders have started to slowly decrease their upside exposure. This can be seen by looking at IG Client Sentiment (IGCS), which often functions as a contrarian indicator. With that in mind, could the Aussie be looking to extend recent gains?

The IGCS gauge shows that about 78% of retail traders still remain net-long AUD/USD. Since the vast majority are biased to the upside, this remains to offer a warning that the exchange rate may fall down the road. However, downside exposure has increased by 16.67% and 34.11% compared to yesterday and last week, respectively.

AUD/USD IG client sentiment chart

 

Source: DailyFX

AUD/USD technical analysis

Taking a look at the daily chart, AUD/USD has extended gains after failing to breach the 78.6% Fibonacci retracement level of 0.6382. Now, the exchange rate has closed above the 31 May low of 0.6459. From here, immediate resistance is the 20-day moving average, followed by the 50-day line. A bearish 'Death Cross' between the two lines remains in play.

It would likely take a confirmatory breakout above the 20-day line to offer a stronger bullish technical conviction. As such, recent gains ought to be treated with a pinch of salt. Confirming a breakout below 0.6382 opens the door to extending the prevailing downtrend since the middle of July.

Australian dollar daily chart

 

Source: TradingView

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