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Market update: AUD/USD may fall after support breakout, retail bullish bets

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Australian dollar on course for worst week since mid-June; retail traders continue to build increasingly bullish exposure and AUD/USD breaks under key support, more pain to come?


original-size.webpSource: Bloomberg


Daniel Dubrovsky | Currency Analyst, DailyFX, San Francisco | Publication date: Wednesday 04 October 2023 07:46

The Australian dollar is on course to drop about -2.2% this week at this stage. If confirmed, that would be the worst five-day drop since the middle of June. Retail traders continue to become increasingly bullish and this can be seen by looking at IG Client Sentiment (IGCS), which often functions as a contrarian indicator.

With that in mind, is the Aussie on course to extend its losing streak?

AUD/USD sentiment outlook – bearish

The IGCS gauge shows that about 85% of retail traders are net-long AUD/USD. Since the vast majority are biased to the upside, this continues to hint that prices may continue lower from here down the road. This is as upside bets increased by 14.21% and 5.76% compared to yesterday and last week, respectively. With that in mind, the combination of overall positioning and recent changes offers a stronger bearish contrarian trading bias.

IG client sentiment chart


original-size.webpSource: DailyFX

Australian dollar technical analysis

Focusing on the daily chart, AUD/USD has confirmed a breakout under the 78.6% Fibonacci retracement level of 0.6382. While there have been closes under this level before in recent weeks, this is the first meaningful consecutive daily drop under it. This has exposed the November 2022 low of 0.6272 as immediate support.

Positive RSI divergence is present showing that downside momentum is fading. That can at times precede a turn higher. Such an outcome would place the focus on the 20- and 50-day moving averages as immediate resistance. These may maintain the broader bearish technical perspective, placing the focus on a potential revisit of the 2022 low of 0.6170.

Australian dollar daily chart


original-size.webpSource: TradingView




This information has been prepared by IG, a trading name of IG Australia Pty Ltd. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients.

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