AUD/USD Breaks 100-day SMA

AUD/USD Breaks 100-day SMA

Fundamentals

For the first time since March, AUD/USD closed below its 100-day SMA, which suggests that the currency is prime for further losses. Of course whether that happens or not hinges on fundamentals. Weaker Australian data and a steep slide in global equities sent the currency pair tumbling on Friday and tonight, AUD remains in play with Australian and Chinese manufacturing PMI reports scheduled for release along with Australian Producer Prices. We know that price pressures down under are falling but the Chinese economy is stabilizing and that may lend support to Australia’s manufacturing sector. If Australian manufacturing activity accelerated in the month of July, it could halt the slide in AUD/USD but if it slows, the currency pair could drop to a fresh 7 week low. Friday’s U.S. non-farm payrolls report is also important because a large part of the AUD/USD’s gains can be attributed to the market’s demand for U.S. dollars. If payrolls growth beats expectations and the unemployment rate holds steady, it will accelerate losses for AUD/USD but if payrolls rise by less than 200k or the unemployment rate increases, it would be significant enough to drive the currency pair back above the 100-day SMA.

Technicals

While fundamentals may be less clear, on a technical basis, the break of the 100-day SMA signals the beginning of a more significant downtrend for AUD/USD. Having consolidated above 0.9320 for the past 7 weeks, today’s move also takes the currency pair below a significant support level. At this stage, technicals point to a continued sell-off that should drive AUD/USD to at least 92 cents and possibly even 91 cents. If the currency pair finds a reason to rally, a break back above the SMA at 0.9320 would be needed to negate the downside momentum.

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